The assessment of the Mongolian pension system in 2007 showed that most members were covered by the pension system in an occupational role indicating that the benefits are the result of employment. While there were only a small number of self-employed members who joined voluntarily into the system. Approximately half the workforce was not covered by mandatory social insurance and had no pension entitlement; the major groups that were excluded from pension insurance are herders, totaling some 400,000, the self-employed, some 190,000 and those employed under civil contract law. The systems were financed through contributions from employers and employees relating to those employed under labor contract law, while shortfalls were financed from general Government resources. Eventually, without altering the then existing pension it would have started to cause a great amount of financial burden on the Government by 2020.
As part of Asian Development Bank (ADB) and Ministry of Finance’s (MOF) initiative to Strengthening the Mongolian Pension System, Achid Consulting LLC and International Securities Consulting Limited have cooperated on providing the necessary Technical Assistance (TA) with an end goal of restructured pension system that is adequate, affordable, self-sustaining and operationally effective. As well as it was aimed that the Government would potentially adopt the proposed recommendations on pension reforms. The TA processes can be roughly generalized as reviewing the current pension policies and practices and existing plans for pension reforms, identifying merits and shortcomings of the current system and existing plans, and recommending a strategy for further pension reforms.
Achid’s team provided expertise in 4 major areas of the project - Pension System, Fund Management, Actuary, and Interpretation/Translation.
The Pension System Expert is responsible for the tasks related to pension schemes and policies, and organizational structures and operations of pension funds. Related tasks include reviewing the existing system, policies, researching and compiling statistics and government policies and procedures. In order to ensure suitability of proposed measures and policies the consultants advise the international experts regarding local situation and potential bottlenecks.
The Fund Management Expert is responsible for assessing the capital market development and infrastructure, researching and compiling statistics, government policies, regulations, and procedures. As well as advising the experts on the local environment and various constraints to ensure the proposed investment and portfolio management policies and guidelines are suitable in Mongolian situations.
Reviewing the current situation and the potential of financial markets (and impediments to their development) where the pension fund may be invested. Investments may be made in, among others, government bonds, asset-backed (especially mortgage-backed) securities, corporate bonds, corporate equities, and shares of investment funds.
Review the infrastructure for capital market development including but not limited to rating agencies, clearing and settlement facilities, and credit enhancement mechanisms.
Assess the capacities of fund managers in state funds and the private sector and capacities of the agencies supervising the activities of fund managers, and identify areas that need strengthening.
In cooperation with the legal expert, analyze the various options regarding investment vehicles and identify the optimal vehicle for the pension fund.
Draft investment policies and guidelines for the pension fund.
Design and conduct a series of training seminars on investment policies and portfolio management for the pension fund, other state funds, and institutional investors.
Study and identify the requirements and steps for drawing qualified international institutional investors to the domestic capital markets.
The Actuarial Expert in charge of reviewing the capacities of actuarial practitioners and researching and compiling government policies, regulations, and procedures. As well as, conducts actuarial calculations and conducts/organizes necessary training activities.
1. Reviewing the current pension system by providing inputs on actuarial calculation. 2. Formulating a strategy for further pension reforms by providing inputs on actuarial calculation. 3. Design and conduct a series of training programs in actuarial calculation for actuarial practitioners in pension funds and other institutional investors.
A team of professional translators with sector knowledge and experience assisted the international experts and translated all deliverables on the project. Such includes translating the necessary Mongolian documents and formal project deliverables as well as interpreting meetings, workshops, and conferences.
As part of the strategy to further reform the pension system, the TA final report recommended the introduction of the multi pillar pension system which would comprise a universal pension, mandatory pension, and voluntary pension, with the latter consisting of employer voluntary occupational savings and individual voluntary savings accounts. The report also proposed the investment policy and guidelines for the pension fund: (i) setting up a transition plan which would convert the current unfunded structure of the pension system to a funded one, (ii) designing a proper governance structure related to the investment decision of the pension fund, and (iii) developing an investment policy that ensures a balanced mix of investment return against the appropriate level of risk that the pension fund can assume. The TA team drafted the new Principle Law on Pension System and related regulations such as the Social Insurance National Council Governance Regulations and Pension Investment Policy Regulations. Finally, to raise public awareness of the benefits of a pension system, the TA team organized 15 workshops for various stakeholders such as Parliamentarians, provincial representatives, and the mass media.