risk management and regulation of defined contribution scheme in the czech republic
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Risk Management and Regulation of Defined Contribution Scheme in the Czech Republic. Ji ří Kr á l Director of Social Insurance Department MLSA, Czech Republic ISSA Seminar for Social Security Actuaries and Statisticians : Actuarial Aspects of Pension Reform Moscow, July 4 , 2002. - PowerPoint PPT PresentationTRANSCRIPT
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Risk Management and Regulation of Defined Contribution Scheme in the Czech Republic
Ji Krl Director of Social Insurance Department MLSA, Czech Republic
ISSA Seminar for Social Security Actuaries and Statisticians :Actuarial Aspects of Pension ReformMoscow, July 4, 2002
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I. Basic Information
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T1
Basic information (1)
19901995200020011989
Population (in thousands)10,36410,32110,26710,270
GDP (in billion CZK)626.21,381.01,959.62,146.0
Economic. Active (in thousands)5,3515,0124,664
Pensioners (in thousands)2,4222,5022,5682,584
Average life expectancy - Men67.669.771.772.1G5
Average life expectancy - Women75.476.678.478.5G575.4
Average Wage (in CZK monthly)3,2868,17513,49014,642
ratio P/P23.3724.2425.0125.16G3
GDP 1990=100100221313343G4
Wage 1990=100100249411446G4
T2
The replacement rates of population above 65
(Compared with population aged 18 to 64 in the same income decile)
Percentages, mid 90 sa
CanadaFinlandGermanyItalyJapanNetherlandsSwedenUnitedUnited
KingdomStates
Decile 1b1481011021287283897680
Decile 21078390927377846978
Decile 3947884867574816677
Decile 4877582817772806478
Decile 5857380787774796478
Decile 6867279767877796581
Decile 7867278768180796783
Decile 8867279778482837294
Decile 9877381778780796783
Decile 10967579759482837294
a) Disposable income of the retirement-age population in decileX divided by the disposable income of the working age population decile X.
b) Decile is based on each population income
Source : Calculations from OECD questionare on distribution of household incomes (1999); OECD, 2001 : table 22
CanadaFinlandGermanyItalyJapanNetherlandsSwedenUnit. KingdomUnit.States
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
Decile 10
G1
10364242223.3693554612
10321250224.2418370313
10267256825.0121749294
10270258425.1606621227
&A
Page &P
Populatin
Pensioners
Ratio
year
in thousands
percentage
Population and Pensioners
G2
100100
248.7827145466220.536569786
410.5295191722312.9351644842
445.5873402313342.7020121367
Average wage
GDP
year
percentage 1990=100
Development of GDP and average wage1990 = 100%
G3
67.675.4
69.776.6
71.778.4
72.178.5
Men
Women
year
number of years
Average life expectancy
Gf4
1481079487858686868796
101837875737272727375
102908482807978798179
128928681787676777775
72737577777881848794
83777472747780828082
89848180797979837983
76696664646567726772
80787778788183948394
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
The replacement rates of population above 65
G5
1481011021287283897680
1078390927377846978
947884867574816677
877582817772806478
857380787774796478
867279767877796581
867278768180796783
867279778482837294
877381778780796783
967579759482837294
Canada
Finland
Germany
Italy
Japan
Netherlands
Sweden
United Kingdom
United States
in %
The replacement rates of population above 65
G6
1021018983
90838477
84788174
82758072
80737974
79727977
78727980
79728382
81737980
79758382
Germany
Finland
Sweden
Netrerlands
Replacement rates of population above 65
G7
148807672128
10778697392
9477667586
8778647781
8578647778
8681657876
8683678176
8694728477
8783678777
9694729475
Canada
United States
United Kingdom
Japan
Italy
Replacement rates of population above 65
G8
100100100
98.6105.982.2
117.3103.393.6
121.9103.394
Average wage
GDP
Pensions
year
year 1990 = 100%
Real value of GDP average wage and pensions
G9
75.468.1
76.669.7
78.572.1
Women
Men
year
numege of years
Average life expectancy
Graf10
10364242223.3693554612
10321250224.2418370313
10267256825.0121749294
10247268726.2223089685
10244286327.9480671613
10200314230.8039215686
10098327632.4420677362
9927337934.0384809106
9691347935.8992879992
&A
Page &P
Population
Pensioners
Ratio
year
in thousands
percentage
Population and pensioners (1)
Data
1989199019911992199319941995199619971998199920002001
Index N 31100110.2167.1189.4226.2251.1277.1303.1333.1377.8386.3405.4429.9
index spot cen 31l100109.7171.8190.9230.6253.6276.7301.1326.7361.7369.3383.7401.1
Vypoten N100.00151.63171.87205.26227.86251.45275.05302.27342.83350.54367.88390.11
Vypoten SC100.00156.61174.02210.21231.18252.23274.48297.81329.72336.65349.77365.63
spot. ceny S100156.6174.1210.3231.3252.5274.7297.9329.7336.7349.9
Mzdy32863792464458176894817296761069111693126661349014642
Dchody1598173121762413273430593578421348405367572459626352
1000.8290237410.81107660360.76946777470.77556337330.82203126760.88489155290.92502880270.90438670290.94332087160.93625199040.9406489411
Dchody10082.981.176.977.582.288.592.590.494.193.694.0
HDP100.088.499.5100.1102.2105.9104.399.099.0100.5103.3103.3
Mzdy73.781.284.290.798.5107.2109.2107.9114.5117.3
73.781.284.290.898.6107.3109.2107.9114.5117.4121.9
1990199520002001
mzda10098.6117.3121.9potno ke spotebitelskm cenm renm
HDP100105.9103.3103.3uit defltor daje z 31 (jokl
Dchody100.082.293.694.0potno pes N stejn s Petrm
Doba doit198919952001
Men68.169.772.1
Women75.476.678.5
199019952000200520102015202020252030
Population (in thousands)10,36410,32110,26710,24710,24410,20010,0989,9279,691
Pensioners (in thousands)2,4222,5022,5682,6872,8633,1423,2763,3793,479
Ratio23.3724.2425.0126.2227.9530.8032.4434.0435.90
List1
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T1
Basic information (1)
19901995200020011989
Population (in thousands)10,36410,32110,26710,270
GDP (in billion CZK)626.21,381.01,959.62,146.0
Economic. Active (in thousands)5,3515,0124,664
Pensioners (in thousands)2,4222,5022,5682,584
Average life expectancy - Men67.669.771.772.1G5
Average life expectancy - Women75.476.678.478.5G575.4
Average Wage (in CZK monthly)3,2868,17513,49014,642
ratio P/P23.3724.2425.0125.16G3
GDP 1990=100100221313343G4
Wage 1990=100100249411446G4
T2
The replacement rates of population above 65
(Compared with population aged 18 to 64 in the same income decile)
Percentages, mid 90 sa
CanadaFinlandGermanyItalyJapanNetherlandsSwedenUnitedUnited
KingdomStates
Decile 1b1481011021287283897680
Decile 21078390927377846978
Decile 3947884867574816677
Decile 4877582817772806478
Decile 5857380787774796478
Decile 6867279767877796581
Decile 7867278768180796783
Decile 8867279778482837294
Decile 9877381778780796783
Decile 10967579759482837294
a) Disposable income of the retirement-age population in decileX divided by the disposable income of the working age population decile X.
b) Decile is based on each population income
Source : Calculations from OECD questionare on distribution of household incomes (1999); OECD, 2001 : table 22
CanadaFinlandGermanyItalyJapanNetherlandsSwedenUnit. KingdomUnit.States
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
Decile 10
G1
10364242223.3693554612
10321250224.2418370313
10267256825.0121749294
10270258425.1606621227
&A
Page &P
Populatin
Pensioners
Ratio
year
in thousands
percentage
Population and Pensioners
G2
100100
248.7827145466220.536569786
410.5295191722312.9351644842
445.5873402313342.7020121367
Average wage
GDP
year
percentage 1990=100
Development of GDP and average wage1990 = 100%
G3
67.675.4
69.776.6
71.778.4
72.178.5
Men
Women
year
number of years
Average life expectancy
Gf4
1481079487858686868796
101837875737272727375
102908482807978798179
128928681787676777775
72737577777881848794
83777472747780828082
89848180797979837983
76696664646567726772
80787778788183948394
Decile 1
Decile 2
Decile 3
Decile 4
Decile 5
Decile 6
Decile 7
Decile 8
Decile 9
The replacement rates of population above 65
G5
1481011021287283897680
1078390927377846978
947884867574816677
877582817772806478
857380787774796478
867279767877796581
867278768180796783
867279778482837294
877381778780796783
967579759482837294
Canada
Finland
Germany
Italy
Japan
Netherlands
Sweden
United Kingdom
United States
in %
The replacement rates of population above 65
G6
1021018983
90838477
84788174
82758072
80737974
79727977
78727980
79728382
81737980
79758382
Germany
Finland
Sweden
Netrerlands
Replacement rates of population above 65
G7
148807672128
10778697392
9477667586
8778647781
8578647778
8681657876
8683678176
8694728477
8783678777
9694729475
Canada
United States
United Kingdom
Japan
Italy
Replacement rates of population above 65
G8
100100100
98.6105.982.2
117.3103.393.6
121.9103.394
Average wage
GDP
Pensions
year
year 1990 = 100%
Real value of GDP average wage and pensions
G9
75.468.1
76.669.7
78.572.1
Women
Men
year
numege of years
Average life expectancy (2)
Graf10
10364242223.3693554612
10321250224.2418370313
10267256825.0121749294
10247268726.2223089685
10244286327.9480671613
10200314230.8039215686
10098327632.4420677362
9927337934.0384809106
9691347935.8992879992
&A
Page &P
Population
Pensioners
Ratio
year
in thousands
percentage
Population and pensioners
Data
1989199019911992199319941995199619971998199920002001
Index N 31100110.2167.1189.4226.2251.1277.1303.1333.1377.8386.3405.4429.9
index spot cen 31l100109.7171.8190.9230.6253.6276.7301.1326.7361.7369.3383.7401.1
Vypoten N100.00151.63171.87205.26227.86251.45275.05302.27342.83350.54367.88390.11
Vypoten SC100.00156.61174.02210.21231.18252.23274.48297.81329.72336.65349.77365.63
spot. ceny S100156.6174.1210.3231.3252.5274.7297.9329.7336.7349.9
Mzdy32863792464458176894817296761069111693126661349014642
Dchody1598173121762413273430593578421348405367572459626352
1000.8290237410.81107660360.76946777470.77556337330.82203126760.88489155290.92502880270.90438670290.94332087160.93625199040.9406489411
Dchody10082.981.176.977.582.288.592.590.494.193.694.0
HDP100.088.499.5100.1102.2105.9104.399.099.0100.5103.3103.3
Mzdy73.781.284.290.798.5107.2109.2107.9114.5117.3
73.781.284.290.898.6107.3109.2107.9114.5117.4121.9
1990199520002001
mzda10098.6117.3121.9potno ke spotebitelskm cenm renm
HDP100105.9103.3103.3uit defltor daje z 31 (jokl
Dchody100.082.293.694.0potno pes N stejn s Petrm
Doba doit198919952001
Men68.169.772.1
Women75.476.678.5
199019952000200520102015202020252030
Population (in thousands)10,36410,32110,26710,24710,24410,20010,0989,9279,691
Pensioners (in thousands)2,4222,5022,5682,6872,8633,1423,2763,3793,479
Ratio23.3724.2425.0126.2227.9530.8032.4434.0435.90
List1
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The History of the Czech Pension Reform Country of Non-reform ? (3)1992 - Abolishment of preferences in I. pillar1994 - Introduction of the voluntary supplementary scheme with state subsidy1995 - Pension Insurance Act (change in conditions of benefits, increasing of assesment base, change in benefit formula, retirement ages, restrictions in invalidity, EU harmonisation, etc.)1999 - Amendment of Supplementary scheme (higher security of assets and introduction of tax incentives)2000 - Tax incentives for life insurance (old-age types of products)
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Basic Information (4)I.pillar (mandatory, state budget, PAYG, uniform for all EA, DB, Old-age + I + Surv., state administration) Contribution Rate 26 %Compliance 96 - 99 %Number of pensioners 2 585 000Replacement Ratio 43 %Expenditures9.4 % of GDPFlat rate (1/5) + Earnings related (4/5)30 years assesment base indexed by average wageBenefits adjusted according to prices + partly wages
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Basic Information (5)Private pensions (voluntary, FF, DC plans only, state contribution + tax incentives, state supervision)
Number of pension funds14Number of participants2 500 000Average contribution340 CZKPension fund assets2.6 % of GDPAverage real rate of return< 1 %
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Basic Information (6)Life insurance
Number of insurance companies > 30Number of participants (contracts)Life insurance 6 200 000Pension insurance with tax incentives 2 100 000Assets 100 billion CZKAverage annual contribution3600 CZK
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II. Description of the Private Pension Scheme
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status as at December 31, 2001
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Number of Participants
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Pension Funds Investment Portfolio as at December 31, 2001
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Average Real Rate of Return of Pension Funds in 1995 2000
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III. Regulation and Consumer Protection
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Legal Status of Pension Funds Pension fund is a legal entity (joint-stock company) Minimum registered capital - 50 million CZK Licensing : MF in agreement with MLSA and SC Status and pension plan - an integral part of the license Status includes : aims and objectives of investment policy, management principles, method of distribution of profit, custodian bank, method of publishing reports Distribution of profit : at least 5% into the reserve fund, max.10% according to the shareholders
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Consumer Protection Special law and specialisation of pension funds Licensing, including pension plan approval Investment rules State supervision (Ministry of Finance and Securities Commission) Custodian bank, auditing, annual reporting Code of good practice of the APF Only DC type of plans Easy change of PF and possibility of lump sum payment instead of annuity
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Investment RulesMaximal total nominal value of securities issued by 1 issuer < 20%. Maximal value of cash deposited with one bank < 10% funds assets.Only state bonds and state-guaranteed bonds, mortgage certificates, bonds issued by Czech National Bank and other banks, corporate bonds which are traded on the stock exchange, bank-guaranteed or bank issued municipal bonds.Maximal value of shares accepted for trading on the stock exchange < 25% assets.Only bonds issued by OECD member states or by central banks of OECD member states.Maximal value of 1 piece of movables that constitute a safe-deposit guarantee for financial means < 5% assets.Maximal value of 1 piece of real estate < 5% assets.
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Pension Plan must includeThe types of pensions;the conditions for entitlement to benefits and their payment;the method of calculation the benefits;the reasons for contracts cancellation;the rules for contributions payment;the rules for deferment of or interruption in contributions payment and changes in the amount of contributions payment;the rules and methods of payment of contributions and the procedures affecting non-remittance or late or incorrect remittance;the conditions for acceptance of financial means from supplementary pension insurance with another pension fund and the adjustment of entitlement on the basis of such acceptance;the principles according to which the beneficiaries including pension recipients participate in the distribution of pension fund's revenues.
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IV. Weaknesses of the Scheme1.Not in full compliance with EU legislation.
2.Rational occupational pension scheme doesnt exist.
3.Insufficient safety of assets.
4.Insufficient economic transparency due to inconsistent separation of pension funds and shareholders assets.
5.High administrative cost especially due to the individual character of the systm.
6.Short-time character of the scheme.
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Thank you for your attention