La formación de los profesores chilenos en evaluación de aprendizajes en el aula

Before the GFC, pension literature on workplace pensions mainly focused on the in- teraction of state and workplace pensions, the political interaction of different interest groups (such as the trade unions) influencing the plan set-ups, as well as the provision of stable pension income streams in retirement. Since the crisis, however, pension literature tended to focus on other angles, such as:

• the impact of wider socio-economic context on pensions (e.g. labour movement, unemployment caused by the crisis – in particular youth unemployment etc.)

12_{CDOs were one of the “exotic” products typically traded before and during the GFC which were}

based on subprime mortgages. Further discussions on CDOs and related products are out of scope for the purpose of this thesis.

and their respective impact on DB and DC pension savings (Anderson, 2015; Bridgen & Meyer, 2009; Casey, 2012; Denny & Churchill, 2016)

• the maturity of the provider market facilities and the impact the crisis has had on their institutional set-up, as well as liquidity (Barr & Diamond, 2008; G. L. Clark, 2008; Fabozzi, Focardi, & Jonas, 2010; Kay & Sinha, 2008; Orenstein, 2011; Stiglitz, 2010)

• pension equality (for example between public and private sector, different em- ployee and individual saver groups etc.) (Chau, Foster, & Yu, 2016; Cutler & Waine, 2013; Ginn, 2013; Grady, 2015; Naczyk & Seeleib-Kaiser, 2015; Oren- stein, 2011)

Workplace pension literature started raising questions on how to redesign DC pension provision, as related risks and shortcomings have become increasingly apparent since the GFC (Antolín & Stewart, 2009; Casey, 2012; Coates, 2001).

One of the key impacts the GFC has had on workplace pensions was the low return of investment from pension scheme investments. Global pension funds’ assets declined by over 20 per cent - USD 5.4tn (Antolín, 2010), putting additional pressure on funding levels for DB schemes, and causing plummeting pension values under DC schemes. As a consequence, evidential research showed that employers started to renegotiate and change DB plan rules, including: raising employee contribution rates, increasing entitlement age, and changing indexation in an attempt to reduce their risk exposure. The trend to close DB plans and replacing them with DC plans further accelerated (Casey, 2012). Overall, the implications of the crisis on DB scheme members that are close to retirement have been less severe. But active members (those that are still contributing to the schemes) have been confronted with scheme changes that will eventually reduce their benefit entitlement or increase their current contribution. Nevertheless, for DC scheme members – the crisis impacted both: those close to retirement as well as active members. Employees nearing retirement saw their pension savings diminished and those considering buying an annuity received unfavourable rates from insurance companies. Consequently, those employees were forced to adapt their spending level in retirement or to reconsider their decision to retire and instead to continue working beyond retirement age (Casey, 2012). So

called bridge jobs, in between retirement and career employment, are quite popular as they may provide supplemental financial incentives – even if they are lower than during the career employment13_{(Quinn, 2002). While it is expected that asset values} will recover over the long-term, only “young” DC scheme members are expected to benefit from this.

Workplace pensions as a tool to provide sustainable and reliable supplementary pen- sion income, has widely been discussed since the GFC. Figure 2.3 illustrates the main challenges around supplementary private pensions (including workplace pensions). The relevant literature is further discussed below.

Figure 2.3: Challenges providing sustainable and reliable private pensions

The theoretical assumption that lies behind private savings being a tool that provides sustainable and reliable pension income assumes that individuals make good choices about the several aspects of pensions, including: saving, borrowing, portfolio choice and in some countries choosing the most appropriate annuitisation (Barr & Diamond, 2008). In addition it assumes that the pension products made available to individuals and employees are competitively priced with the overall aim to provide long-term financial support to its members. Yet, in practice, private pension provision looks different.

Lack of information and knowledge

One of the most widely discussed challenges around pension savings has been the “imperfect information” (Barr & Diamond, 2008). Empirical evidence has shown that employees and individuals are often insufficiently and inadequately informed (e.g. due

13_{Bridge jobs also provide a social network and improve physical and mental wellbeing (Quinn,}

to terminology used), and do not take the time to fully comprehend risks and un- certainties related to private savings. Recent literature on behavioural economics has identified that people do not save enough or opt for inadequate pensions and invest- ment options, due to several reasons: procrastinating starting to save (Choi, Hastings, & Shrestha, 2012), not wanting to take decisions such as opting into a pension saving arrangement (Barr & Diamond, 2008; Beshears, Choi, & Laibson, 2008), complex- ity and conflicting information, deciding to retire at earliest date possible, opting for familiar investment choices and hence lacking investment diversification, basing saving choices on herd behaviour, as well as over-trading pension assets searching short-term returns (Barr & Diamond, 2008; Munnell, 2011). Burtless (2004) bases people’s limited decision taking on bounded rationality, bounded self-control, bounded self-interest, or bounded selfishness. Interdisciplinary literature, mainly from HRM, has emphasised the role culture has played in terms of individual decision taking on pension savings, investment, and hence the final pension available. Van Dalen, Hen- kens, and Hershey (2010) have identified three main forces shaping individual saving decisions which are summarised in Table 2.4 below.

Type of force Definition

Institutional forces Decisions are shaped by the quality and design of pension institutions, their trust in the financial and governing institutions

Social forces Decisions are shaped by the social context in which they are made, including the individual’s immediate social and workplace network, as well as upbringing

Psychological forces Decisions are made affected by one’s cognitive capabilities, the ability to plan over time and the perseverance required to carry out those long-range plans

Source: Van Dalen, Henkens, and Hershey (2010)

Table 2.4: Three forces shaping individual savings decisions

Decision taking in terms of pension savings is therefore shaped by multi-layers, whereby the institutional context of and trust in institutions, the social environment as well as the wider knowledge and capabilities of the individual impact the ultimate pension verdict.

With the aim to establish some conclusive findings, pension research has typically focused on comparable groups of individuals and analysed their decision taking in terms of pension savings. These groups were constructed depending on age, ethnic

background and household income; and generally found that young individuals, as well as those from certain ethnic backgrounds and low household income save less for their future and take less active decisions in terms of pension savings (Flippen & Tienda, 2000; Ginn, 2013; Tamborini & Kim, 2017). Research has also focused on the integrated culture and gender role – often arguing that women are disadvantaged when it comes to pension savings (Chau, Foster, & Yu, 2016; Ginn, 2013; Grady, 2015).

Elevating research from societal groups, scholars have increasingly analysed differences in the private pension saving habits between national cultures. While this research exists, it is still far from mainstream or conclusive, and few in numbers. Most notable papers in this field are from Van Dalen, Henkens, and Hershey (2010); and Engström and Westerberg (2003), who compared pension saving characteristics between the United States (where most of related research and findings stem from), and the Netherlands and Sweden respectively. Van Dalen, Henkens, and Hershey (2010) show that the differences in the dispositions of workers (with respect to future orientation and financial planning) play a far larger role in explaining differences in perceptions of savings adequacy in the United States than in the Netherlands. This research therefore illustrates that there are varying degrees of influences of the three forces shaping individual savings decisions among nations. The research from Engström and Westerberg (2003) confirmed as well as contradicted some of the findings from US studies. For example, while they agree that learning and familiarity significantly affect individuals’ decision-making (psychological forces), there is less evidence that in the Swedish system younger employees and women are less active in terms of their pension savings decision-making. While both papers neglect the categorisation in terms of industry, region and type of workforce (e.g. blue and white collar workers); they highlight the role of different cultural cross-border influences, raising caution for generalisation only based on societal groups without taking into account the wider context.

Inadequate pension products and charges

In addition to the shortcomings of information sharing and bad decision-making by individuals, criticism on private pension products and related charges were made. As

part of this debate, DC pensions have been attracting the majority of attention, as concerns were raised that not only insurance and pensions providers are limited in their ability to provide competitively-priced products that match individual’s needs for DC (Barr & Diamond, 2008), but also DC pensions fail to integrate accumulation and decumulation phases. In many DC plans longevity is either not insured or only available in combination with specific risk exposures to financial risks (e.g. constant nominal or real income), and product management during the accumulation phase is often not aimed at providing stable retirement income (Barr & Diamond, 2008). A related debate about the provider market has been on taxation and administration charges, which get passed on to members. A number of studies have emphasised a lifetime approach to measuring the cost incidence of charges in both voluntary and mandatory pension schemes. Among others, Murthi, Orszag, and Orszag (1999) indicate that various fees accumulated over a lifetime could consume over 40 per cent of individual pension account value in the UK. Whitehouse (2000) compared pension charges among several countries. While he acknowledges that it is difficult to compare pension charges among different countries due to the different set-ups and varying pension coverage (i.e. in some countries pension coverage also includes disability insurance etc.) – he found that Mexico’s charges are the most complex in Latin America. It is important to note that “most complex” does not necessarily mean the most expensive. Mitchell (1999), for example, finds that costs related to administrative record-keeping (which is one of the important factors in costs that get transformed into pension charges) are low in Mexico, as the pension providers enjoy economies of scale. More information on pension charges in Mexico can be found in section 2.3.

Overall, it is important to adopt a careful approach to generalising pension charges (Sluchynsky, 2015) as it needs a holistic view of pension provision and the relative role of the different pillars providing the core old-age income (as outlined in section 2.1). For example, if pension provision is mainly derived through pillar one and two, higher charges for private and workplace pensions have less impact on the overall pension income than if the majority of pension income stems from pillars three and four.

pension privatisation. It defined workplace pensions, recognising that the notion and role of workplace pensions differ within national contexts, depending on its overall importance to provide pension income and therefore national responses to pension privatisation. It also introduced as well as contrasted the different types of pension benefit schemes. It highlighted the shortcomings of workplace pensions particularly in the context of a crisis. Literature on pensions since the financial crisis has mainly focused on the adequacy and sustainability of pensions as the GFC made it apparent that there is a gap in terms of what workplace and private pensions are expected to deliver versus the resilience they show during unpredictable times. Overall, the key challenges for private and workplace pensions include: the lack of information provided to individuals, the overall knowledge gap among savers, as well as inadequate pension products in the market and related charges which are imposed on scheme members reducing their overall pension income. The next section takes account of the literature review in section 2.1 and section 2.2, and introduces the country case studies. It describes how pension privatisation has transformed the Swedish and Mexican pension system