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The role of choice in the transition to a funded pension system

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  • Palacios, Robert
  • Whitehouse, Edward

Abstract

A critical question in the transition to a funded, private pension system is whether the new private element is presented as a mandate or choice to current and future workers. This report sets out the spectrum of available options and looks at policy in 13 reforming countries-Argentina, Bolivia, Chile, Colombia, El Salvador, Mexico, Peru, Uruguay, Croatia, Hungary, Kazakhstan, Poland, and the United Kingdom. It concludes that older workers are best excluded from reform because the economic benefits are small and the political resistance is likely to be large if they are included. However, a defined cut-off age is arbitrary for reasons of intergenerational equity and heterogeneity of portfolio composition and risk preferences within cohorts. A voluntary switch is preferred. The main objection is the resulting uncertainty over the numbers switching. Analysis of reforming countries shows, however, a consistent and rational pattern of switching. The paper concludes by discussing policy options for managing the switching process.

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Bibliographic Info

Paper provided by The World Bank in its series Social Protection Discussion Papers with number 20109.

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Date of creation: 30 Sep 1998
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Handle: RePEc:wbk:hdnspu:20109

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Related research

Keywords: Non Bank Financial Institutions; Banks&Banking Reform; Pensions&Retirement Systems; Environmental Economics&Policies; Economic Theory&Research;

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References

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  1. Andrew Abel & Gregory N. Mankiw & Lawrence H. Summers & Richard Zeckhauser, . "Assessing Dynamic Efficiency: Theory and Evidence," Rodney L. White Center for Financial Research Working Papers 14-88, Wharton School Rodney L. White Center for Financial Research.
  2. Richard Disney & Edward Whitehouse, 1994. "Choice of private pension plan and pension benefits in the UK," IFS Working Papers W94/02, Institute for Fiscal Studies.
  3. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
  4. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection Discussion Papers 20048, The World Bank.
  5. Whitehouse, Edward, 1998. "Pension reform in Britain," Social Protection Discussion Papers 20053, The World Bank.
  6. Richard Disney & Edward Whitehouse, 1994. "What are pension plan entitlements worth in Britain?," IFS Working Papers W94/01, Institute for Fiscal Studies.
  7. Zvi Bodie & Alan J. Marcus & Robert C. Merton, 1988. "Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?," NBER Chapters, in: Pensions in the U.S. Economy, pages 139-162 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Estelle James & Alejandra Cox Edwards, 2005. "Do Individual Accounts Postpone Retirement: Evidence from Chile," Working Papers wp098, University of Michigan, Michigan Retirement Research Center.
  2. Acuna R., Rodrigo & Iglesias P., Augusto, 2001. "Chile's pension reform after twenty years," Social Protection Discussion Papers 24079, The World Bank.
  3. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  4. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
  5. Whitehouse, Edward, 2000. "Pension reform, financial literacy and public information: a case study of the United Kingdom," MPRA Paper 10323, University Library of Munich, Germany.
  6. Andrews, Emily S., 2001. "Kazakhstan : an ambitious pension reform," Social Protection Discussion Papers 23156, The World Bank.
  7. Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
  8. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
  9. Schröder, Carsten, 2012. "Profitability of pension contributions – evidence from real-life employment biographies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(03), pages 311-336, July.
  10. DeMarco, Gustavo & Rofman, Rafael & Whitehouse, Edward, 1998. "Supervising mandatory funded pension systems : issues and challenges," Social Protection Discussion Papers 20113, The World Bank.
  11. Holzmann, Robert, 1998. "Financing the transition to multipillar," Social Protection Discussion Papers 20052, The World Bank.
  12. Robert Holzmann & Robert Palacios & Asta Zviniene, 2001. "On the Economics and Scope of Implicit Pension Debt: An International Perspective," Empirica, Springer, vol. 28(1), pages 97-129, March.
  13. Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
  14. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
  15. Robert Jahoda & Jiøí Špalek, 2009. "Pension Reform through Voluntary Opt-Out: The Czech Case," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 309-333, Oktober.
  16. Chlon, Agnieszka, 2000. "Pension reform and public information in Poland," Social Protection Discussion Papers 23142, The World Bank.
  17. Roy Allen & Norman Bedford & András Margitay-Becht, 2011. "A “human ecology economics” framework for Eastern Europe," International Journal of Social Economics, Emerald Group Publishing, vol. 38(3), pages 192-208, February.

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