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Addressing the Legacy Costs in an NDC Reform: Conceptualization, Measurement, Financing

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Listed:
  • Holzmann, Robert

    (University of New South Wales)

  • Jousten, Alain

    (University of Liège)

Abstract

The paper provides a framework for the conceptualization, definition and estimation of legacy costs that need to be addressed in a reform that transforms an unfunded defined contribution (NDB) scheme into a notional (or non-financial) defined contribution (NDC) scheme. As the new contribution rate is fixed and, perhaps, reduced, paying for the accrued to date liabilities leaves a financing gap that needs to be estimated and financed, best outside the pension system if a less distorting financing form is available. The paper illustrates the proposed measurement approach with broad estimates under a hypothetical NDC reform in China.

Suggested Citation

  • Holzmann, Robert & Jousten, Alain, 2010. "Addressing the Legacy Costs in an NDC Reform: Conceptualization, Measurement, Financing," IZA Discussion Papers 5296, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5296
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    References listed on IDEAS

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    1. Robalino, David A. & Bodor, András, 2009. "On the financial sustainability of earnings-related pension schemes with ‘pay-as-you-go’ financing and the role of government-indexed bonds," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(2), pages 153-187, April.
    2. Heikki Oksanen, 2010. "The Chinese pension system - First results on assessing the reform options," European Economy - Economic Papers 2008 - 2015 412, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Marco Buti & Daniele Franco & Lucio R. Pench (ed.), 1999. "The Welfare State in Europe," Books, Edward Elgar Publishing, number 1748.
    4. Holzmann, Robert & Palacios, Robert & Zviniene, Asta, 2004. "Implicit pension debt: issues, measurement and scope in international perspective," Social Protection Discussion Papers and Notes 30153, The World Bank.
    5. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
    6. Holzmann, Robert, 1997. "On economic benefits and fiscal requirements of moving from unfunded to funded pensions," Financiamiento para el Desarrollo 5250, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    7. Holzmann, Robert, 1998. "Financing the transition to multipillar," Social Protection Discussion Papers and Notes 20052, The World Bank.
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    Citations

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    Cited by:

    1. Eduardo Fajnzylber & David Robalino, 2010. "Assessing Fiscal Costs and the Distribution of Pensions in Transitions to FDC and NDC Systems: A Retrospective Analysis for Chile," Working Papers wp_005, Adolfo Ibáñez University, School of Government.
    2. Galiani, Sebastian & Gertler, Paul & Bando, Rosangela, 2016. "Non-contributory pensions," Labour Economics, Elsevier, vol. 38(C), pages 47-58.
    3. Sebastian Martinez & Michelle Pérez & Luis Tejerina & Anastasiya Yarygina, 2020. "Pensions for the Poor: the Effects of Non-contributory Pensions in El Salvador," Journal of Economics, Race, and Policy, Springer, vol. 3(1), pages 96-115, March.
    4. Loumrhari, Ghizlan, 2016. "Pensions sociales et réduction de la pauvreté. Le cas du Maroc [Social pensions and reduction of the poverty. The case of Morocco]," MPRA Paper 74076, University Library of Munich, Germany.
    5. Robert Holzmann, 2017. "The ABCs of nonfinancial defined contribution (NDC) schemes," International Social Security Review, John Wiley & Sons, vol. 70(3), pages 53-77, July.
    6. Galiani, Sebastian & Gertler, Paul & Bando, Rosangela, 2016. "Non-contributory pensions," Labour Economics, Elsevier, vol. 38(C), pages 47-58.
    7. Takayama, Noriyuki, 2013. "Intergenerational Equity and the Gender Gap in Pension Issues," CIS Discussion paper series 605, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    coverage expansion; legacy costs; pension reform; NDC;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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