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A public guarantee of a minimum return to defined contribution pension scheme members


  • Giuseppe Grande

    () (Bank of Italy)

  • Ignazio Visco

    () (Bank of Italy)


The recent financial crisis has clearly demonstrated the exposure of defined contribution (DC) pension scheme members to extreme financial market risks. This paper argues that the government might offer DC plan members a minimum return guarantee, funded by risk based premia. Option pricing formulas show that the guarantee could be quite expensive, but public provision could reduce the costs borne by workers. Such an arrangement would be sustainable for the government and would give workers an acceptable benefit/contribution ratio in worst-case scenarios, while still allowing them to reap the advantages of occupational or individual funded pension schemes.

Suggested Citation

  • Giuseppe Grande & Ignazio Visco, 2010. "A public guarantee of a minimum return to defined contribution pension scheme members," Temi di discussione (Economic working papers) 762, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_762_10

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    Cited by:

    1. Giuseppe Marotta, 2011. "Are defined contribution pension schemes socially sustainable? A conceptual map from a macroprudential perspective," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 11101, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    2. repec:fau:fauart:v:67:y:2017:i:4:p:342-369 is not listed on IDEAS
    3. repec:eee:hapoch:v1_311 is not listed on IDEAS

    More about this item


    defined contribution pension schemes; financial market tail risks; return guarantees; exchange option; Modigliani�s Treasury CFDB swap;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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