Mongolia inherited a pay-as-you gopublic pension system providing universal coverage and highlevels of benefits (relative to pre-retirement income),consistent with the state provision of all forms of socialinsurance. The system was reformed in 1995, including theintroduction of contributions for pensions and other socialinsurance, but it remained dependent upon Governmenttransfers. The reforms improved the existing scheme butfailed to achieve financial sustainability or address anumber of weaknesses in the existing scheme's design,which created weak incentives for contributing to the systemand benefit inequities between different groups ofworkers/cohorts. This policy note responds to this request,and it is part of an ongoing broader collaboration with theGovernment and the Asian Development Bank (ADB) on pensionreform that includes: (i) supporting the development of thepolicy framework for pension reform; (ii) improving thepension policy making capacity; and (iii) assisting in theidentification of the institutional development needs tosupport the new pension system. This note identifies anumber of challenges in the design and implementation of thecurrent social insurance system that would need to beaddressed to strengthen the system's ability to provideconsumption smoothing and old-age income security forMongolia's population.
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