Individually-funded programs and their role in the improvement of pensions and the economic development GUILLERMO ARTHUR FIAP’s PRESIDENT PRESENTATION PREPARED FOR THE KYIV INTERNATIONAL ECONOMIC FORUM 2016 (KIEF), TO BE HELD ON OCTOBER 6TH AND 7TH, 2016 IN KYIV, UKRAINE .
Unreported Pension Debt 2009-2010 Elderly (65+) in 2015 & 2050 (% GDP) (% of the population) Almost 9 times the country’s production within a year Unreported debt of countries that adopted individually- funded pension programs will disappear over time. * For Ukraine, World Bank estimations, 2004. ** For Chile, Mexico and Peru, World Bank estimations, 2010. Source: Edwards (2010) and World Bank (2004). Source: World Population Prospects: The 2015 Revision (UN Population Division , 2016).
Pension Fundshavehadexcellentprofitability Real historical cumulative profitability (annualized) of Pension Funds – Dec. 2015 Chile LA LATAM Average = = 7.31 7.31% Source: FIAP, Dec. 31, 2015
Increased deepening of capital market In Chile, funds have the 34% of the stock of national debt; 58% of the financial system’s debt; 37% of the companies’ bonds; 6% of stock. Source: Elaborated by FIAP on Dec 31, 2015.
Pension Funds reach every economic sector Pension Funds’ Portfolio per economic sector (Dec. 2015) Chile Chile Per eru Co Colombia ia Mexic Me ico Oth thers Oth thers Foreign For Oth thers Oth thers State 3% 3% State 4% 4% State 16% 16% 0% 0% 0% 0% Foreign For For Foreign Financial al 23% 23% For Foreign 18% 18% 35% 35% Corpor orat 33% 33% 40% 40% 2% 2% State 44% 44% Corpor orate e 47% 47% 15% 15% 23% 23% Corpor orate Financial al Cor orpor orate Financial al Financial al 13% 13% 15% 15% 32% 32% 18% 18% 19% 19% Source: FIAP, Dec. 31, 2015.
Effect on Savings and Investment It is possible due to the increasing reduction of the public sector deficit (as a result of financing an unsustainable PAYGO system). The period of of highest transiti tion deficit it in in Chile le is is over: deficit reached a maximum of 4% of GDP until 2000, then it decreased to a 2.6% of the GIP and it will disappear in the long term (in 2050 the deficit will disappear according to Arenas et al., 2009). A direct benefit that it is being harvested: release of state resources for strengthening the “Pillar Zero” (solidarity pension system created by the Reform of 2008).
Role of individually-funded systems in GDP annual growth 5,35% 6,00% 4,58% 4,55% Total GDP Growth Total GDP Growth Total GDP Growth Reform's 0,33% effect on GDP 5,00% 0,37% Reform's Reform's effect 0,58% effect on GDP on GDP 4,00% 2,40% 3,00% Total GDP Growth 5,02% 0,31% Reform's effect 4,21% 2,00% 3,97% on GDP 2,09% 1,00% 0,00% Chile Colombia Mexico Peru Rest Impact on Individually Funded System % of GDP annual 8.08% 12.75% 12.92% 6.22% growth explained by pension reform Source: SURA (2013) , “Role of the private pension system in the economic development of Latin America, experiences of Colombia, Mexico, Chile and Peru ” .
Impact on real economy (i) Housing: About one milli lion and a half houses are financed with Pension Funds (PFA and Life Insurance Co. through the bank). Mortgage loans are offered for terms of up to 30 years. (ii ii) Infrastructure: About US$ 7.000 millon of the PFs are invested on the electrical sector, US$ 630 millon in telecommunications sector, and about US$ 2.000 millon are invested on concessions (highways, airports, hospitals).
THANK YOU! 9
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