Mongolia inherited a pay-as-you go public pension system providing universal coverage and high levels of benefits (relative to pre-retirement income), consistent with the state provision of all forms of social insurance. The system was reformed in 1995, including the introduction of contributions for pensions and other social insurance, but it remained dependent upon Government transfers. The reforms improved the existing scheme but failed to achieve financial sustainability or address a number of weaknesses in the existing scheme's design, which created weak incentives for contributing to the system and benefit inequities between different groups of workers/cohorts. This policy note responds to this request, and it is part of an ongoing broader collaboration with the Government and the Asian Development Bank (ADB) on pension reform that includes: (i) supporting the development of the policy framework for pension reform
(ii) improving the pension policy making capacity
and (iii) assisting in the identification of the institutional development needs to support the new pension system. This note identifies a number of challenges in the design and implementation of the current social insurance system that would need to be addressed to strengthen the system's ability to provide consumption smoothing and old-age income security for Mongolia's population.