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What are NDC Pension Systems? What Do They Bring to Reform Strategies?

  • Axel Börsch-Supan

    ()

    (Munich Center for the Economics of Aging (MEA))

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    This paper has two parts. Part 1 presents the basic ideas underlying notional defined contribution (NDC) systems and discusses their main advantages and disadvantages. We argue that a NDC system is mainly a political device. It makes parametric reform, badly needed to stabilize the pay-as-you-go (PAYG) pillars all over the World, easier because it exposes the trade-offs and clarifies concepts. It may also change the microeconomics of labor supply and savings. It does not, however, change the macroeconomics of PAYG systems and thus does not substitute for the introduction of pre-funded second and third pillars. NDC systems can be installed as individual account systems, as done most prominently in Sweden. However, they can also be mimicked by a set of rules in a conventional defined benefits PAYG system, showing that NDC systems are more a political than economic devices. Part 2 describes how the German pension reform proposals made in late summer 2003 effectively introduce a NDC system without explicit NDC-type accounting.

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    Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 03042.

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    Date of creation: 16 Dec 2003
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    Handle: RePEc:mea:meawpa:03042
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    1. Gora, Marek & Rutkowski, Michal, 1998. "The quest for pension reform : Poland's security through diversity," Social Protection Discussion Papers 20111, The World Bank.
    2. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
    3. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
    4. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
    5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    6. Chlon, Agnieszka & Gora, Marek & Rutkowski, Michal, 1999. "Shaping pension reform in Poland : security through diversity," Social Protection Discussion Papers 20852, The World Bank.
    7. Disney, Richard, 1999. "Notional accounts as a pension reform strategy : an evaluation," Social Protection Discussion Papers 21302, The World Bank.
    8. Palmer, Edward, 2000. "The Swedish pension reform model : framework and issues," Social Protection Discussion Papers 23086, The World Bank.
    9. Robert Holzmann, 1996. "Pension Reform, Financial Market Development, and Economic Growth; Preliminary Evidence From Chile," IMF Working Papers 96/94, International Monetary Fund.
    10. Fox, Louise & Palmer, Edward, 1999. "Latvian pension reform," Social Protection Discussion Papers 20850, The World Bank.
    11. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, 07.
    12. Legros, Florence, 2003. "Notional Defined Contribution : A Comparison of the French and the German Point Systems," Economics Papers from University Paris Dauphine 123456789/6478, Paris Dauphine University.
    13. Florence Legros, 2003. "Notional Defined Contribution : a Comparison of the French and the German Point Systems," Working Papers 2003-14, CEPII research center.
    14. Valdes-Prieto, Salvador, 2000. " The Financial Stability of Notional Account Pensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 395-417, June.
    15. : Klaus Schmidt-Hebbel, 1998. "Does Pension Reform Really Spur Productivity, Saving, and Growth?," Working Papers Central Bank of Chile 33, Central Bank of Chile.
    16. Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc.
    17. Börsch-Supan, Axel & Tumbarello, Patrizia & Palacios, Robert, 1999. "Pension systems in the Middle East and North Africa: A window of opportunity," Sonderforschungsbereich 504 Publications 99-44, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    18. Axel H. Boersch-Supan & Joachim K. Winter, 2001. "Population Aging, Savings Behavior and Capital Markets," NBER Working Papers 8561, National Bureau of Economic Research, Inc.
    19. Homburg, Stefan, 1988. "Theorie der Alterssicherung," EconStor Books, ZBW - German National Library of Economics, number 92902.
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