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Regressive intracohort redistribution in nonfinancial defined contribution pension

Author

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  • Andras Simonovits

    (Institute of Economics Centre for Economic and Regional Studies Hungarian Academy of Sciences)

Abstract

Nonfinancial defined contribution (NDC) pension systems have recently become popular because they provide the strong incentives of the private funded systems without requiring a difficult transition period. Using the framework of mechanism design, these systems have theoretically been criticized because they neglect the regressive intracohort redistribution: longer lived workers retire later and are rewarded as if their life expectancies were average. Now we document this by Hungarian data, and giving up the framework of mechanism design, we corroborate our earlier qualitative findings withthe more realistic benefit adjustment function and wage heterogeneity.

Suggested Citation

  • Andras Simonovits, 2013. "Regressive intracohort redistribution in nonfinancial defined contribution pension," CERS-IE WORKING PAPERS 1312, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1312
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    File URL: http://econ.core.hu/file/download/mtdp/MTDP1312.pdf
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    References listed on IDEAS

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    1. Antoine Bommier & Marie‐Louise Leroux & Jean‐Marie Lozachmeur, 2011. "Differential mortality and social security," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(1), pages 273-289, February.
    2. András Simonovits, 2006. "Optimal Design of Pension Rule with Flexible Retirement: The Two-Type Case," Journal of Economics, Springer, vol. 89(3), pages 197-222, December.
    3. Peter A. Diamond, 2005. "Taxation, Incomplete Markets, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262541823, April.
    4. Simonovits, András, 2003. "Designing optimal linear rules for flexible retirement," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(3), pages 273-293, November.
    5. Markus Knell, 2012. "Increasing Life Expectancy and Pay-As-You-Go Pension Systems," Working Papers 179, Oesterreichische Nationalbank (Austrian Central Bank).
    6. Coile, Courtney & Diamond, Peter & Gruber, Jonathan & Jousten, Alain, 2002. "Delays in claiming social security benefits," Journal of Public Economics, Elsevier, vol. 84(3), pages 357-385, June.
    7. Robert Holzmann & Edward Palmer, 2006. "Pension Reform : Issues and Prospects for Non-Financial Defined Contribution Schemes," World Bank Publications - Books, The World Bank Group, number 6983.
    8. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
    9. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, vol. 88(11), pages 2259-2281, September.
    10. repec:onb:oenbwp:y::i:179:b:1 is not listed on IDEAS
    11. András Simonovits, 2004. "Designing Benefit Rules for Flexible Retirement with or without Redistribution," CESifo Working Paper Series 1370, CESifo.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Gábor P. Kiss, 2014. "New Numerical Fiscal Rules for the Pension Balance," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 9(2), pages 56-65, July.

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    More about this item

    Keywords

    nonfinancial defined contributions; variable retirement; adverse selection; actuarial fairness;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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