Pension Systems in the Developing World: Current Challenges and Future Directions
Today, people’s greatest financial concern is no longer paying their short-term bills or credit-card debt. According to the new study by Zurich Insurance Group and the University of Oxford (2019), ‘retirement security is the top financial worry’ for workers in 14 out of 16 countries. Likewise, recent surveys on old-age income suggest that nearly half of the respondents from different parts of the world do not feel secure about having a comfortable retirement (AARP Foundation, 2018; Credit Suisse, 2020).
While a lack of retirement savings has turned out to be a global phenomenon, most studies cover the design of pension systems in developed countries, which face relatively few challenges compared to developing ones. Moreover, from a handful of papers on developing regions, there is a tendency to discuss pension-related issues in the context of specific countries or topics. To this end, this study aims to provide an overall and detailed picture of the public and private pension systems in the developing world, including the present challenges and future directions.
The first part of the paper presents an overview of public pensions in developing countries. It illustrates the impact of ageing on sustainability and the adequacy of pay-as-you-go plans, along with some suggestions for the future of state pensions. In the second part, the paper focuses on private pension systems in the developing world and discusses the reasons for low pension savings with respect to the issues of coverage, contribution, and investment performance. This section also concludes by proposing certain recommendations for private pensions in the light of financial as well as behavioural and technological developments.