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The strengths and failures of incentive mechanisms in notional defined contribution pension systems

Author

Listed:
  • Angelo Marano
  • Carlo Mazzaferro
  • Marcello Morciano

    (Italian Ministry of Labor and Social Affairs
    Department of Economics, University of Bologna
    University of East Anglia UK, Institute for Social and Economics Research)

Abstract

Public pension systems based on the Notional Defined Contribution (NDC) principle were introduced during the ‘90s in Italy, Sweden and Poland. They should realize actuarial equity and incentive neutrality. However, when one considers the presence of NDC pensions together with minimum and social assistance pensions, this is no longer true and a regressive feature of NDC systems emerges. We examine the extent of such incentive problem in all three countries mentioned and discuss how it could be addressed by changing the cumulation rules for social assistance and NDC pensions. In the Italian case, the use dynamic micro-simulation model, allows us to examine the incentive issue also in its distributive and financial aspects. The same model allows us to also assess some major effects of the December 2011 pension reform, which, however, being very prescriptive, could show some side-effects on the incentive and distributional aspects we focus on.

Suggested Citation

  • Angelo Marano & Carlo Mazzaferro & Marcello Morciano, 2012. "The strengths and failures of incentive mechanisms in notional defined contribution pension systems," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 71(1), pages 33-70, October.
    • Handle: RePEc:gde:journl:gde_v71_n1_p33-70
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    References listed on IDEAS

    as
    1. Carlo Mazzaferro & Marcello Morciano, 2011. "Measuring intra-generational and inter-generational redistribution in the reformed Italian social security system," Working Papers 11, Department of the Treasury, Ministry of the Economy and of Finance.
    2. Giuseppe Carone & Herwig Immervoll & Dominique Paturot & Aino Salomäki, 2004. "Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes," OECD Social, Employment and Migration Working Papers 18, OECD Publishing.
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    9. Massimo Baldini & Carlo Mazzaferro & Marcello Morciano, 2008. "Assessing the implications of long-term care policies in Italy: a microsimulation approach," Politica economica, Società editrice il Mulino, issue 1, pages 47-72.
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    Cited by:

    1. M. Baldini & C. Mazzaferro & P. Onofri, 2015. "Pension expectations and reality. What do Italian workers know about their future public pension benefits?," Working Papers wp1007, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Daniele Franco & Pietro Tommasino, 2020. "Lessons From Italy: A Good Pension System Needs an Effective Broader Social Policy Framework," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(2), pages 73-81, March.

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    More about this item

    Keywords

    public pension systems; minimum pension; dynamic micro-simulation;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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