The collapse in 2009 of CLICO Guyana, a systemic insurer with assets amounting to 3% of GDP, reduced the insurance market by 75%. Because various pension funds were exposed, the collapse destroyed wealth, undermined confidence in the financial sector, and highlighted weaknesses in the insurance and pension regulatory framework.
A thorough reform of the regulatory framework was required to prevent future crises, ensure consistency with international standards, and foster sound growth of the insurance and pension sectors.
The pension reform also needed to address key weaknesses of the voluntary private pension system. Weaknesses included limited coverage (less than 4 percent of the labor force), long vesting periods (10 years) which particularly affect pensions for women, and a high rate of withdrawal.
Private pensions have an important role in improving poverty and shared prosperity sustainably. They can help prevent old age poverty, broaden financial inclusion, provide funds for investments and are essential for a sustainable and diversified solution to demographic challenges to relieve pressure on over-stretched government budgets.
Under the Pension Regulation Project, the Bank helped the Government draft a new pension law. Improvements of
In addition, the reform includes requirements for appropriate safeguards in the management of pensions, such as having a trustee and a custodian, to ensure that companies sponsoring pension plans do not misappropriate pension funds. Simpler pension products were created for employers who want pensions but do not have the time or expertise needed for traditional occupational pension provision.
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