Europe and Central Asia - The Evolution of Pension Systems in Eastern Europe and Central Asia: Opportunities, Constraints, Dilemmas and Emerging Best Practices

Since the early 1990s, the transition economies of Eastern Europe and Central Asia have gone through major changes in their pension systems.

Some of those changes are related to the shrinking contribution base and the inability to finance prior commitments. Other changes, however, constitute genuine reforms aimed at making the pension systems sustainable, despite the forthcoming demographic crisis.

The reforms entail a move from a one-pillar, pay-as-you-go defined-benefit system, to a multipillar system that includes a funded defined-contributions pillar, and that converts the pay-as-you-go pillar into a self-adjustable and transparent one.

The paper describes ongoing developments, assesses the gravity of the current and forthcoming crisis in the presence of potential labor market changes and examines choices for a new pensions system with respect to the organization, administration, guarantees, transition arrangements, participation requirements, role of the Government, annuitization etc.

The paper concludes that no " one size fits all " approach is appropriate; however, some best practices could already be outlined based on the developments so far, and worldwide experience.

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1. The ongoing changes
2. The rationale for pension reform
2.1 Labor market effects and the long-term balance of the pension systems
2.2 A multi-pillar pension system
3. Dilemmas and emerging solutions with respect to reforms and reformed systems
3.1 Size of the second pillar and financing the transition
3.2 Participation requirement in the new system
3.3 Adjusting the first pillar
3.4 Guarantees
3.5 Disability and survivors benefits
3.6 Second pillar pension funds
3.7 Administration
3.8 Government supervision of second pillar fund managers
3.9 Second pillar retirement age and payment options
4. Conclusion: “one size does not fit all”

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The Evolution of Pension Systems in Eastern Europe and Central Asia: Opportunities, Constraints, Dilemmas and Emerging Best Practices