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Government guarantees on pension fund returns

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  • Pennacchi
  • Pennacchi, George

Abstract

This report reviews defined contribution pension return guarantees typically made by governments in connection with pension privatizations. Finance theory related to the pricing of options provides a unifying framework for evaluating the cost of these guarantees. The report considers two types of guarantees on the rate of return earned by an individual pension fund: a guarantee of a fixed minimum rate of return; and a guarantee of a minimum rate of return that is set relative to the performance of other pension funds. A minimum pension benefit guarantee for a participant in a mandatory defined contribution pension plan is also discussed. Costs for each of these guarantees are illustrated using typical parameter values.

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Bibliographic Info

Paper provided by The World Bank in its series Social Protection Discussion Papers with number 20049.

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Date of creation: 30 Apr 1998
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Handle: RePEc:wbk:hdnspu:20049

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Related research

Keywords: Banks&Banking Reform; Insurance&Risk Mitigation; Insurance Law; Economic Theory&Research; Economic Stabilization;

References

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  1. Cooperstein Richard L. & Pennacchi George G. & Redburn F. Stevens, 1995. "The Aggregate Cost of Deposit Insurance: A Multiperiod Analysis," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 4(3), pages 242-271, July.
  2. George G. Pennacchi & Christopher M. Lewis, 1994. "The value of Pension Benefit Guaranty Corporation insurance," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 735-756.
  3. James E. Pesando, . "The Government's Role in Insuring Pensions," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 94-16, Wharton School Pension Research Council, University of Pennsylvania.
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Cited by:
  1. World Bank & International Monetary Fund, 2005. "Financial Sector Assessment : A Handbook," World Bank Publications, The World Bank, number 7259, August.

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