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Individual choice of pension arrangement as a pension reform strategy


  • Richard Disney

    () (Institute for Fiscal Studies and University of Sussex)

  • Robert Palacios

    (Institute for Fiscal Studies)

  • Edward Whitehouse

    (Institute for Fiscal Studies)


The paper examines social security (public pension) reforms in which the programme is partially shifted from a public unfunded basis to a private, prefunded, basis. It focuses on reforms where individuals have a choice in switching from public funded to private unfunded programmes (as in the ?ontracting out? scheme in the UK), or where some individuals are forced to join the funded scheme, or reforms which combine both these options. The welfare consequences of such reform strategies are analysed both from an individual and a macroeconomic perspective. The paper also examines whether individuals respond ?ationally' to the incentives inherent in such programmes.

Suggested Citation

  • Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:99/18

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    References listed on IDEAS

    1. Whitehouse, Edward, 1998. "Pension reform in Britain," Social Protection and Labor Policy and Technical Notes 20053, The World Bank.
    2. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    3. Ronald Lee & Jonathan Skinner, 1999. "Will Aging Baby Boomers Bust the Federal Budget?," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 117-140, Winter.
    4. Gora, Marek & Rutkowski, Michal, 1998. "The quest for pension reform : Poland's security through diversity," Social Protection and Labor Policy and Technical Notes 20111, The World Bank.
    5. Ravi Jagannathan & Narayana R. Kocherlakota, 1996. "Why should older people invest less in stock than younger people?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 11-23.
    6. Disney, Richard & Whitehouse, Edward, 1993. "Contracting-Out and Lifetime Redistribution in the UK State Pension System," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 25-41, February.
    7. Miles, David, 1999. "Modelling the Impact of Demographic Change upon the Economy," Economic Journal, Royal Economic Society, vol. 109(452), pages 1-36, January.
    8. Palacios, Robert & Whitehouse, Edward, 1998. "The role of choice in the transition to a funded pension system," Social Protection and Labor Policy and Technical Notes 20109, The World Bank.
    9. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    10. Henning Bohn, 2001. "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 203-246 National Bureau of Economic Research, Inc.
    11. Laurence J. Kotlikoff, 1998. "Simulating the Privatization of Social Security in General Equilibrium," NBER Chapters,in: Privatizing Social Security, pages 265-311 National Bureau of Economic Research, Inc.
    12. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
    13. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, July.
    14. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection and Labor Policy and Technical Notes 20048, The World Bank.
    15. Martin Feldstein, 1998. "Privatizing Social Security," NBER Books, National Bureau of Economic Research, Inc, number feld98-1, January.
    16. Alan L. Gustman & Thomas L. Steinmeier, 1998. "Privatizing Social Security: First-Round Effects of a Generic, Voluntary, Privatized U.S. Social Security System," NBER Chapters,in: Privatizing Social Security, pages 313-361 National Bureau of Economic Research, Inc.
    17. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
    18. Iben, Andreas & Miles, David K, 1998. "The Reform of Pension Systems: Winners and Losers Across Generations," CEPR Discussion Papers 1943, C.E.P.R. Discussion Papers.
    19. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
    20. Hemming, Richard & Kay, John A, 1982. "The Costs of the State Earnings Related Pension Scheme," Economic Journal, Royal Economic Society, vol. 92(366), pages 300-319, June.
    21. Richard Hemming, 1998. "Should Public Pensions be Funded?," IMF Working Papers 98/35, International Monetary Fund.
    22. Disney, Richard & Whitehouse, Edward, 1996. "What Are Occupational Pension Plan Entitlements Worth in Britain?," Economica, London School of Economics and Political Science, vol. 63(250), pages 213-238, May.
    23. Dilnot, Andrew & Disney, Richard & Johnson, Paul & Whitehouse, Edward, 1994. "Pensions policy in the UK: An economic analysis," MPRA Paper 10478, University Library of Munich, Germany.
    24. Laurence J. Kotlikoff & Kent A. Smetters & Jan Walliser, 1998. "Opting Out of Social Security and Adverse Selection," NBER Working Papers 6430, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Robert Jahoda & Jiøí Špalek, 2009. "Pension Reform through Voluntary Opt-Out: The Czech Case," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 309-333, Oktober.
    2. Whitehouse, Edward, 2000. "Pension reform, financial literacy and public information: a case study of the United Kingdom," MPRA Paper 10323, University Library of Munich, Germany.
    3. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
    4. Boeri, Tito, 2000. "Social Europe: Dramatic Visions and Real Complexity," CEPR Discussion Papers 2371, C.E.P.R. Discussion Papers.
    5. Richard Disney & Carl Emmerson & Sarah Smith, 2004. "Pension Reform and Economic Performance in Britain in the 1980s and 1990s," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 233-274 National Bureau of Economic Research, Inc.
    6. Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
    7. James Banks & Carl Emmerson, 2000. "Public and private pension spending: principles, practice and the need for reform," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 1-63, March.
    8. Mariacristina Rossi, 2009. "Examining the Interaction between Saving and Contributions to Personal Pension Plans: Evidence from the BHPS," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(2), pages 253-271, April.
    9. Disney, Richard, 1999. "OECD public pension programmes in crisis : an evaluation of the reform options," Social Protection and Labor Policy and Technical Notes 20849, The World Bank.
    10. Disney, Richard, 2000. "Declining public pensions in an era of demographic ageing: Will private provision fill the gap?," European Economic Review, Elsevier, vol. 44(4-6), pages 957-973, May.
    11. Brown, Jeffrey R. & Weisbenner, Scott J., 2014. "Why do individuals choose defined contribution plans? Evidence from participants in a large public plan," Journal of Public Economics, Elsevier, vol. 116(C), pages 35-46.
    12. Alan L. Gustman & Thomas L. Steinmeier, 2002. "The New Social Security Commission Personal Accounts: Where Is the Investment Principal?," NBER Working Papers 9045, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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