May 2013

IZA Policy Paper No. 59: The Design and Implementation of Public Pension Systems in Developing Countries: Issues and Options

David E. Bloom, Roddy McKinnon

Developing countries are increasingly aware of the need to design and implement improvements in public systems for providing pensions to the elderly. Such systems may aim to smooth consumption and thus provide reliable income to older people, reduce poverty among the elderly, insure those no longer working against the risk of running out of funds, and promote equal treatment of men and women in retirement security even when lifetime earnings and projected average life expectancy may differ greatly. The increasing share of the elderly in the population of all countries makes implementation of sustainable pension systems both more urgent and more difficult. Planners must consider numerous options in pension system design and choose the combination of policies that will optimize coverage, benefits, and financing given a country's demographics, history, practices regarding family support of the elderly, political system, extent of informal labour, and fiscal situation.