Old age security in transitional economies
The former communist countries in
            Eastern Europe and Central Asia (EECA) are undertaking their
            second great social experiment of the century: the
            transition from authoritarian central planning to a market
            economy.  One of the many problems they face during the
            transition is what to do with their pension systems.  Their
            problems are more complex than countries elsewhere at the
            same income level for three reasons.  First, the systems are
            mature, with high and sharply rising dependency rations.
            Second, pension coverage is more extensive than in most
            other middle-income countries, because of over
            industrialization and the collectivization of agriculture.
            Third, pension reform is being undertaken at the same time
            as other fundamental economic changes.  The timing, sequence
            and political economy of pension reform are complex. The
            author reviews the main feature of existing EECA pension
            systems, identifies the major reform issues and reform
            options, discusses obstacles to reform, and proposes a
            sequence for reform.  She focuses primarily on the richer,
            older European countries of the EECA, where pension systems
            have matured. Paradoxically, pensions are low in those
            countries, yet expenditures as a proportion of GDP are high.
            The main reason for this is the very low age of retirement,
            which means a short contribution period and a high
            dependency ratio.  EECA governments must bring spending
            promises in line with a more realistic revenue ceiling.
            What makes reform so difficult is that too many people have
            already retired.  Especially during the transition, when
            there are few opportunities to acquire wealth and some
            intergenerational redistribution is needed, the retirees
            need a safety net whether or not they deserve  one on the
            basis of age alone.  The author's recommendations are
            designed to make the system more equitable and efficient for
            this group. Four years after the fall of the Berlin Wall,
            pension reform has been elusive in EECA despite the severity
            of the problem.  The author identifies several reasons for
            this.  First, the extent of the pension system crisis was
            not foreseen in the early days of the transition (except
            perhaps in Hungary). Indeed, some countries expanded
            entitlements to help induce the labor market to adjust.  As
            the depth of the problem became clear, EECA countries have
            tried to formulate reform programs, but only Albania has
            passed legislation substantially reducing entitlements.
            Another reason reform has proved difficult in EECA countries
            is that governments have tried to reduce the scope of the
            public pillar without providing an alternative to assure
            old-age security.  Failure to begin developing other pillars
            (based on savings and insurance principles) to meet the
            active generation's needs for old-age security may have
            doomed reform efforts from the start.