Understanding Individual Account Guarantees
AbstractDemographic aging renders workers vulnerable to the inherent uncertainty of unfunded social security systems. This realization has set off a global wave of social security reforms, and more than 20 countries have set up Individual Accounts (IA) plans in response. Strengths of IAs are that participants gain ownership in their accounts, and they also may diversify their pension investments; additionally they produce a capitalized, funded system that enhances old-age economic security. While IAs reduce the risk participants face due to unfunded social security system, holding capital market investments in IAs could expose participants to fluctuations in the value of their pension assets. Concern over market volatility has prompted some to emphasize the need for “guarantees” of pension accumulations. This paper offers a way to think about guarantees in the context of a reform that includes Individual Accounts. We illustrate that guarantee costs can be important and they can vary significantly with time horizon, investment mix, and guarantee design. The findings indicate that plan designers and budget analysts would do well to recognize such costs and identify how they can be financed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp035.
Length: 35 pages
Date of creation: Jan 2003
Date of revision:
Contact details of provider:
Postal: P.O. Box 1248, Ann Arbor, MI 48104
Phone: (734) 615-0422
Fax: (734) 647-4575
Web page: http://www.mrrc.isr.umich.edu/publications/papers/
More information through EDIRC
Other versions of this item:
- G2 - Financial Economics - - Financial Institutions and Services
- H4 - Public Economics - - Publicly Provided Goods
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert C. Merton & Zvi Bodie & Alan J. Marcus, 1984.
"Pension Plan Integration as Insurance Against Social Security Risk,"
NBER Working Papers
1370, National Bureau of Economic Research, Inc.
- Robert C. Merton & Zvi Bodie & Alan Marcus, 1987. "Pension Plan Integration As Insurance Against Social Security Risk," NBER Chapters, in: Issues in Pension Economics, pages 147-172 National Bureau of Economic Research, Inc.
- Jensen, Bjarne Astrup & Sørensen, Carsten, 2000. "Paying for minimum interest rate guarantees: Who should compensate who?," Working Papers 2000-1, Copenhagen Business School, Department of Finance.
- Samwick, Andrew & Feldstein, Martin, 2001.
"Potential Paths of Social Security Reform,"
2920119, Harvard University Department of Economics.
- Robert L. Clark & Olivia S. Mitchell, 2002. "Strengthening Employment-Based Pensions in Japan," NBER Working Papers 8891, National Bureau of Economic Research, Inc.
- Kent Smetters, 2001. "The Effect of Pay-When-Needed Benefit Guarantees on the Impact of Social Security Privatization," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 91-112 National Bureau of Economic Research, Inc.
- Martin Feldstein & Jeffrey B. Liebman, 2001.
NBER Working Papers
8451, National Bureau of Economic Research, Inc.
- Philippe Jorion & William N. Goetzmann, 1999. "Global Stock Markets in the Twentieth Century," Journal of Finance, American Finance Association, vol. 54(3), pages 953-980, 06.
- Zvi Bodie, 2001. "Financial Engineering and Social Security Reform," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 291-320 National Bureau of Economic Research, Inc.
- Ranguelova, Elena & Feldstein, Martin S., 2000. "Accumulated Pension Collars: A Market Approach to Reducing The Risk of Investment-Based Social Security Reform," Scholarly Articles 10456097, Harvard University Department of Economics.
- Martin Feldstein & Elena Ranguelova, 2001.
"Accumulated Pension Collars: A Market Approach to Reducing the Risk of Investment-Based Social Security Reform,"
in: Tax Policy and the Economy, Volume 15, pages 149-166
National Bureau of Economic Research, Inc.
- Martin Feldstein & Elena Ranguelova, 2000. "Accumulated Pension Collars: A Market Approach to Reducing the Risk of Investment-Based Social Security Reform," NBER Working Papers 7861, National Bureau of Economic Research, Inc.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Kent Smetters, 2002.
"Controlling the Cost of Minimum Benefit Guarantees in Public Pension Conversions,"
NBER Working Papers
8732, National Bureau of Economic Research, Inc.
- Smetters, Kent, 2002. "Controlling the cost of minimum benefit guarantees in public pension conversions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(01), pages 9-33, March.
- Marie-Eve Lachance & Olivia S. Mitchell, 2003. "Guaranteeing Individual Accounts," American Economic Review, American Economic Association, vol. 93(2), pages 257-260, May.
- Olivia S. Mitchell & Alexander Muermann, 2003. "The Demand for Guarantees in Social Security Personal Retirement Accounts," Working Papers wp060, University of Michigan, Michigan Retirement Research Center.
- Sule Sahin & Adem Yavuz Elveren, 2009. "A Cost Analysis of a Minimum Pension Guarantee for the Individual Pension System in Turkey," Working Paper Series, Department of Economics, University of Utah 2009_13, University of Utah, Department of Economics.
- Muermann, Alexander & Mitchell, Olivia S. & Volkman, Jacqueline M., 2006. "Regret, portfolio choice, and guarantees in defined contribution schemes," Insurance: Mathematics and Economics, Elsevier, vol. 39(2), pages 219-229, October.
- World Bank, 2003. "The Pension System in Iran : Challenges and Opportunities, Volume 1. Main Report," World Bank Other Operational Studies 14645, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (MRRC Administrator).
If references are entirely missing, you can add them using this form.