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Are defined contribution pension schemes socially sustainable? A conceptual map from a macroprudential perspective

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  • Giuseppe Marotta

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Abstract

If the combined retirement income, provided by public and private defined contribution (DC) pension schemes, falls below socially acceptable standards, there is a political risk that consensus seeker policymakers could yield to pressures to commit future fiscal revenues. These contingent liabilities, when incorporated in markets’ expectations, are bound to create spillovers on sovereign risk, with negative feedback loops on the capital adequacy of banks and of other intermediaries, owing to losses on their government paper. Among the causes of reduced annuities out of the final assets in DC pension funds is an equity risk premium much lower than the commonly values advertised by the industry and by policymakers. From a macroprudential perspective, this political risk should be taken into account in stress tests assessing banks’ resilience to financial shocks.

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Bibliographic Info

Paper provided by University of Modena and Reggio E., Faculty of Economics "Marco Biagi" in its series Department of Economics with number 0671.

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Length: pages 13
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:mod:depeco:0671

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Web page: http://www.dep.unimore.it/
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Keywords: pensions; equity risk premium; political risk; sovereign risk; stress test;

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  1. Grech, Aaron George, 2010. "Assessing the sustainability of pension reforms in Europe," MPRA Paper 27407, University Library of Munich, Germany.
  2. Maarten van Rooij & Annamaria Lusardi & Rob J. Alessie, 2011. "Financial Literacy, Retirement Planning, and Household Wealth," NBER Working Papers 17339, National Bureau of Economic Research, Inc.
  3. Giuseppe Grande & Ignazio Visco, 2010. "A public guarantee of a minimum return to defined contribution pension scheme members," Temi di discussione (Economic working papers) 762, Bank of Italy, Economic Research and International Relations Area.
  4. S. N. Smirnov, 2011. "The Pension System," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 54(5), pages 20-30, September.
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Cited by:
  1. Stefano Cosma & Elisabetta Gualandri, 2013. "The sovereign debt crisis: the impact on the intermediation model of Italian banks," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13102, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  2. Elisabetta Gualandri & Valeria Venturelli, 2013. "The financing of Italian firms and the credit crunch: findings and exit strategies," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13101, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  3. Chiara Pederzoli & Costanza Torricelli, 2013. "Efficiency and unbiasedness of corn futures markets: New evidence across the financial crisis," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13091, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".

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