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Defined contribution plan vs. defined benefits plan: reforming the legal retirement age

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  • Juan Lacomba
  • Francisco Lagos

Abstract

In the context of the current debate surrounding the reform of most social security systems, this paper analyzes the political economy of the legal retirement age. Using a life-cycle model, we study the effects of changing the redistributive parameters on the optimal legal retirement age in a Pay-As-You-Go social security system. Two pension plans are studied, with opposite results. In a defined contribution plan, an increase in the redistribution levels will delay the preferred legal retirement age. On the other hand, in a defined benefits plan, the same increase in the redistribution levels will lower this preferred age.

Suggested Citation

  • Juan Lacomba & Francisco Lagos, 2009. "Defined contribution plan vs. defined benefits plan: reforming the legal retirement age," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 12(1), pages 1-11.
  • Handle: RePEc:taf:jpolrf:v:12:y:2009:i:1:p:1-11
    DOI: 10.1080/17487870802677668
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    1. Jonathan Gruber & David Wise, 1997. "Social Security Programs and Retirement Around the World: Introduction and Summary of Papers by..," NBER Working Papers 6134, National Bureau of Economic Research, Inc.
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