25 years of averting the old age crisis in Eastern Europe.

The influential World Bank Averting the old-age crisis study profoundly influenced pension policies around the globe, but nowhere more so than in Eastern Europe. While Western Europe dismissed radical carve-out pension privatization initiatives, Eastern European countries with similar Pas-As-You-Go legacies pursued World Bank reforms hoping to increase retirement incomes, spur economic growth, and hedge political risks inherent in public systems. However, 25 years later, reversals are taking place in all reforming countries, ranging from outright dismantling of mandatory private pension funds to their scaling-down and moving to voluntary participation. Empirical evidence presented in this article suggests that carve-out privatization failed to accelerate economic growth, while private pension funds turned out to be dynamically inefficient and inferior to PAYG systems they were intended to replace. We argue that the carve-out approach is the root cause of inherent economic and fiscal tension between public and private pension pillars. We identify a minimum set of Pareto improving reform adjustments that address the most pressing sources of economic inefficiencies and political instability by undoing the carve-out financing. The suggested re-reforms would be a first step in enabling private pension funds in Eastern Europe to become a meaningful supplement to existing PAYG benefits, in line with typical pension practices in Western Europe. [ABSTRACT FROM AUTHOR]