It appears moving backwards on pension reforms has become the thing to do on both sides of the Atlantic.
In April, the IMF issued a report discussing how to take the long-term cost of pension reform into account within fiscal and debt indicators. One of the springboards for the report was the reversal of some of the pension reforms we’ve seen throughout Europe as governments look to shore up balance sheets. The authors rightly argue that short-term gain often overshadows a longer-term loss.
Hungary last year moved much of its private pension assets to the state. Last month, new rules came into effect in Poland diverting 5% of the 7.3% of salary going to private pension funds to the state.
In both cases, the changes represented a step back from reforms that led to significant savings on the countries’ balance sheets. (Read the related feature within our special report on the European sovereign debt crisis)
But another recent reversal we’ve seen has come from Latin America. In the 1990s, Bolivia’s decision to move its pension assets from the state to private managers placed it among the most advanced pension systems in the region.
However, the current government has decided to nationalise the assets once more claiming it is creating a pension system that is equal for all. (Read the related feature)
Bolivia took one move that sets it apart from those making similar changes in Europe. President Evo Morales actually decreased the retirement age to 58 from 65, bucking a worldwide trend to increase the age at which workers can retire.
Bolivia’s decision has ‘unsustainable’ written across it. Unless, of course, Morales has discovered a fountain of youth.
