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The strengths and failures of incentive mechanisms in notional defined contribution pension systems

  • Angelo Marano
  • Carlo Mazzaferro
  • Marcello Morciano

    ()

    (Italian Ministry of Labor and Social Affairs
    Department of Economics, University of Bologna
    University of East Anglia UK, Institute for Social and Economics Research)

Public pension systems based on the Notional Defined Contribution (NDC) principle were introduced during the ‘90s in Italy, Sweden and Poland. They should realize actuarial equity and incentive neutrality. However, when one considers the presence of NDC pensions together with minimum and social assistance pensions, this is no longer true and a regressive feature of NDC systems emerges. We examine the extent of such incentive problem in all three countries mentioned and discuss how it could be addressed by changing the cumulation rules for social assistance and NDC pensions. In the Italian case, the use dynamic micro-simulation model, allows us to examine the incentive issue also in its distributive and financial aspects. The same model allows us to also assess some major effects of the December 2011 pension reform, which, however, being very prescriptive, could show some side-effects on the incentive and distributional aspects we focus on.

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Article provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.

Volume (Year): 71 (2012)
Issue (Month): 1 (October)
Pages: 33-70

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Handle: RePEc:gde:journl:gde_v71_n1_p33-70
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  1. Carlo Mazzaferro & Marcello Morciano, 2008. "CAPP_DYN: A Dynamic Microsimulation Model for the Italian Social Security System," Department of Economics 0595, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
  2. Mazzaferro, Carlo & Morciano, Marcello & Savegnago, Marco, 2012. "Differential mortality and redistribution in the Italian notional defined contribution system," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(04), pages 500-530, October.
  3. Edmund Cannon & Ian Tonks, 2003. "UK annuity rates and pension replacement ratios 1957-2002," LSE Research Online Documents on Economics 24832, London School of Economics and Political Science, LSE Library.
  4. Baldini Massimo & Mazzaferro Carlo & Morciano Marcello, 2008. "Assessing the implications of long-term care policies in Italy: a microsimulation approach," Politica economica - Journal of Economic Policy (PEJEP), Società editrice il Mulino, issue 1, pages 47-72.
  5. Giovanni Guazzarotti & Pietro Tommasino, 2008. "The Annuity Market in an Evolving Pension System: Lessons from Italy," CeRP Working Papers 77, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  6. Edward R. Whitehouse, 2010. "Decomposing Notional Defined-Contribution Pensions: Experience of OECD Countries' Reforms," OECD Social, Employment and Migration Working Papers 109, OECD Publishing.
  7. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  8. Allison Schrager & G. A. Mackenzie, 2004. "Can the Private Annuity Market Provide Secure Retirement Income?," IMF Working Papers 04/230, International Monetary Fund.
  9. Giuseppe Carone & Herwig Immervoll & Dominique Paturot & Aino Salomäki, 2004. "Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes," OECD Social, Employment and Migration Working Papers 18, OECD Publishing.
  10. Carlo Mazzaferro & Marcello Morciano, 2011. "Measuring intra-generational and inter-generational redistribution in the reformed Italian social security system," Working Papers 11, Department of the Treasury, Ministry of the Economy and of Finance.
  11. Chłoń-Domińczak, Agnieszka & Strzelecki, Paweł, 2013. "The minimum pension as an instrument of poverty protection in the defined contribution pension system – an example of Poland," Journal of Pension Economics and Finance, Cambridge University Press, vol. 12(03), pages 326-350, July.
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