32 Scenario **_14._** Starting the funded tier wRh the generation younger than 30 In 1997, lowering social security tax for all workers by **1%** a year from 1997 to 2006 (to 23% In 2006) with contribution to the funded tier remaining at 22% for the whole period, increasing retirement ages to 65, **and** maintaining constant replacement ratio under PAYG

||1995|1996|1997|1998|2000|2005|2010|<br>2020|<br>2030|
|---|---|---|---|---|---|---|---|---|---|
|As % of formal GDP||||||||||
|Payroll contributions (all)|8.43|9.14|9.14|9.43|9.35|8.76|8.70|<br>9.21|<br>9.42|
|Total PAYG expenditure|8.49|9.64|9.99|10.23|10.33|8.30|8.30|<br>9.01|<br>8.99|
|Balance|-0.06|-0.50|-0.85|-0.80|-0.97|0.46|0.41|<br>0.20|<br>0.43|
|Funded Tier (trillions of Kbv., curr. price)||||||||||
|Total assets (stock)|||134|349|1104|5996|19083|118294|517233|
|Gov't borrowing from Funded tier|||134|192|356|892|2095|<br>9016|<br>27851|
|(as % of formal GDP)|||1.3%|1.6%|2.1%|2.9%|4.2%|<br>6.9%|<br>8.1%|
|Stock of gov't debt|||134|349|1104|5336|17306|110396|491019|
|(as % of formal GDP)|||1%|3%|6%|18%|35%|<br>84%|<br>144%|
|Extra resources needed for PAYG|||-86|-97|-166|0|0|0|0|
|(as % of formal GDP)|||-0.8%|-0.8%|-1.0%|0.0%|0.0%|<br>0.0%|<br>0.0%|
|Average replacement ratio|29%|29%|30%|31%|31%|31%|31%|<br>31%|<br>31%|
|Systemdependencyratio|111%|118%|114%|107%|99%|71%|68%|<br>71%|<br>69%|
|Share of formal sector employment|59%|59%|62%|65%|69%|71%|71%|<br>72%|<br>72%|

Note: In 1997, for workers younger than 30, 22% tax goes to personal account, 11 % to PAYG, in 1998, for workers younger than 31, 22% tax to funded tier, 10% to PAYG, etc., and after 2006, 22% tax will go to funded tier,1 % is used for social pensions. Real interest rate on funded tier balance is 3% annually. This is an optimistic "what-it' scenario in the sense that share of formal sector is same as Scenario 11.

# Scenario 15. Starting the funded tier with the generation younger than 30 in 1997,

lowering social security tax for all workers by 1% a year from 1997 to 2006 (to 23% In 2006) with contribution to the funded tier remaining at 17% for the whole period, increasing retirement ages to 65, and maintaining constant replacement ratio under PAYG

||1995|1996|1997|1998|2000|2005|2010|2020|<br>2030|
|---|---|---|---|---|---|---|---|---|---|
|As % of formal GDP||||||||||
|Payroll contributions (all)|8.43|9.14|9.14|9.43|9.35|8.76|8.70|9.21|<br>9.42|
|Total PAYG expenditure|8.49|9.64|9.99|10.23|10.33|8.30|8.30|9.01|<br>8.99|
|Balance|-0.06|-0.50|-0.85|-0.80|-0.97|0.46|0.41|0.20|<br>0.43|
|Funded Tier (trillions of Kbv., curr. price)||||||||||
|Total assets (stock)|||101|263|831|4513|14742|93294|410362|
|Gov't borrowing from Funded tier|||101|145|268|637|1632|7145|<br>21933|
|(as % of formal GDP)|||1.0%|1.2%|1.6%|2.1%|<br>3.3%|5.5%|<br>6.4%|
|Stock of gov't debt|||101|263|831|3853|12965|85396|384149|
|(as % offormal GDP)|||1%|2%|5%|13%|26%|65%|<br>112%|
|Extra resources needed for PAYG|||-86|-97|-166|0|0|0|0|
|(as % of formal GDP)|||-0.8%|-0.8%|-1.0%|0.0%|0.0%|0.0%|<br>0.0%|
|Average replacement ratio|29%|29%|30%|31%|31%|31%|31%|31%|<br>31%|
|System dependency ratio|111%|118%|114%|107%|99%|71%|68%|71%|<br>69%|
|Share of formal sector employment|59%|59%|62%|65%|69%|71%|71%|72%|<br>72%|
|<br>Note: In 1997, for workers younger than 30,<br>in 1998, for workers younger than 31, 1|17% tax g<br>7% tax to|oes to pers<br>funded tie|onal acco<br>r, 15% to P|unt,<br>16%to<br>AYG, etc., a|PAYG,<br>nd after 20|06,||||

17% tax will go to funded tier, 6% is used for social pensions. Real interest rate on funded tier balance is 3% annually. This is an optimistic 'what-if' scenario in the sense that share of formal sector is same as Scenario 11.