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Are defined contribution pension schemes socially sustainable? A conceptual map from a macroprudential perspective

Listed author(s):
  • Giuseppe Marotta


If the combined retirement income, provided by public and private defined contribution (DC) pension schemes, falls below socially acceptable standards, there is a political risk that consensus seeker policymakers could yield to pressures to commit future fiscal revenues. These contingent liabilities, when incorporated in markets’ expectations, are bound to create spillovers on sovereign risk, with negative feedback loops on the capital adequacy of banks and of other intermediaries, owing to losses on their government paper. Among the causes of reduced annuities out of the final assets in DC pension funds is an equity risk premium much lower than the commonly values advertised by the industry and by policymakers. From a macroprudential perspective, this political risk should be taken into account in stress tests assessing banks’ resilience to financial shocks.

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Paper provided by University of Modena and Reggio E., Faculty of Economics "Marco Biagi" in its series Department of Economics with number 0671.

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Length: pages 13
Date of creation: Nov 2011
Handle: RePEc:mod:depeco:0671
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  1. Grech, Aaron George, 2010. "Assessing the sustainability of pension reforms in Europe," MPRA Paper 27407, University Library of Munich, Germany.
  2. S. N. Smirnov, 2011. "The Pension System," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 54(5), pages 20-30, September.
  3. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
  4. 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.
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