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Notional accounts as a pension reform strategy : an evaluation

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  • Disney, Richard
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    Abstract

    This paper considers the implementation of, and rationale for, pension reforms based on notional accounts (sometimes known as notional defined contribution plans or NDCs). The distinguishing feature of such reforms is that a structure of individual accounts is established, in which contributions notionally accrue. No fund as such is established and the implicit"return"on such accounts is determined by a formula linked to some underlying index of long-run fiscal sustainability. the author contrasted this"third way"with two other reform strategies: a parametric reform strategy (favored by the IMF) in which the existing defined benefit plan was fixed up, and a transition strategy by which the pension scheme was largely converted to a set of individual funded accounts. After examining some early precedents for such schemes, and describing actual reform processes in a number of countries along notional accounts lines, a generic notional accounts reform was evaluated using thre broad criteria. From the literature survey and arguments presented here , the author concludes that whatever the advantages of the notional account reform, they do not dominate other strategies , especially those that introduce true diversification between unfunded and funded components.

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    Bibliographic Info

    Paper provided by The World Bank in its series Social Protection Discussion Papers with number 21302.

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    Date of creation: 31 Dec 1999
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    Handle: RePEc:wbk:hdnspu:21302

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    Related research

    Keywords: Economic Theory&Research; Environmental Economics&Policies; Pensions&Retirement Systems; Banks&Banking Reform; Health Monitoring&Evaluation;

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    Cited by:
    1. David Robalino, 2005. "Pensions in the Middle East and North Africa: Time for Change," World Bank Publications, The World Bank, number 7427, January.
    2. Christina Benita Wilke, 2008. "On the feasibility of notional defined contribution systems: The German case," MEA discussion paper series 08165, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    3. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336, January.
    4. Axel Börsch-Supan, 2003. "What are NDC Pension Systems? What Do They Bring to Reform Strategies?," MEA discussion paper series 03042, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
    6. Yan Wang & Dianqing Xu & Zhi Wang & FanZhai, 2001. "Implicit pension debt, transition cost, options, and impact of China's pension reform : a computable general equilibrium analysis," Policy Research Working Paper Series 2555, The World Bank.
    7. Agar Brugiavini & Vincenzo Galasso, 2003. "The Social Security Reform Process in Italy: Where do We Stand?," Working Papers wp052, University of Michigan, Michigan Retirement Research Center.
    8. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
    9. Axel Börsch-Supan, 2004. "From Traditional DB to Notional DC Systems," MEA discussion paper series 04063, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    10. José Enrique Devesa Carpio & Mar Devesa Carpio & Robert Meney Gaya & Amparo Nagore García & Inmaculada Domínguez Fabián & Borja Encinas Goenechea, 2012. "Equidad y sostenibilidad como objetivos ante la reforma del sistema contributivo de pensiones de jubilación," Hacienda Pública Española, IEF, vol. 201(2), pages 9-38, June.
    11. John B. Williamson, 2001. "Future Prospects for Notional Defined Contribution Schemes," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2(4), pages 19-24, October.
    12. Jukka Lassila & Tarmo Valkonen, 2001. "Pension Prefunding, Ageing, and Demographic Uncertainty," International Tax and Public Finance, Springer, vol. 8(4), pages 573-593, August.

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