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

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Author Info

  • Holzmann, Robert

    ()
    (University of Malaya)

  • 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5296.

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Length: 24 pages
Date of creation: Oct 2010
Date of revision:
Publication status: published in: Edward Palmer, Robert Holzmann and David Robalino, Nonfinancial Defined Contribution Pension Schemes in a Changing Pension World: Volume 2, Gender, Politics, and Financial Stability, World Bank, 2013, 277-304
Handle: RePEc:iza:izadps:dp5296

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Related research

Keywords: coverage expansion; legacy costs; pension reform; NDC;

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References

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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, Cambridge University Press, vol. 8(02), pages 153-187, April.
  2. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers, OECD Publishing 126, OECD Publishing.
  3. Holzmann, Robert & Palacios, Robert & Zviniene, Asta, 2004. "Implicit pension debt: issues, measurement and scope in international perspective," Social Protection Discussion Papers 30153, The World Bank.
  4. Holzmann, Robert, 1998. "Financing the transition to multipillar," Social Protection Discussion Papers 20052, The World Bank.
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Cited by:
  1. Sebastian Galiani & Paul Gertler & Rosangela Bando, 2014. "Non-Contributory Pensions," NBER Working Papers 19775, National Bureau of Economic Research, Inc.
  2. Takayama, Noriyuki, 2013. "Intergenerational Equity and the Gender Gap in Pension Issues," CIS Discussion paper series, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 605, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  3. 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, Adolfo Ibáñez University, School of Government wp_005, Adolfo Ibáñez University, School of Government.

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