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The Role of Choice in the Transition to a Funded Pension System

  • Palacios, Robert
  • Whitehouse, Edward

A critical question in the transition to a funded, private pension system is whether the new private element is presented as a mandate or choice to current and future workers. This paper sets out the spectrum of available options and looks at policy in 13 reforming countries. It concludes that older workers are best excluded from reform, because the economic benefits are small and the political resistance is likely to be large if they are included. However, a defined cut-off age is arbitrary for reasons of intergenerational equity and heterogeneity of portfolio composition and risk preferences within cohorts. A voluntary switch is preferred. The main objection is the resulting uncertainty over the numbers switching. Analysis of reforming countries shows however, a consistent and rational pattern of switching. The paper concludes by discussing policy options for managing the switching process.

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File URL: http://mpra.ub.uni-muenchen.de/14176/1/MPRA_paper_14176.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14176.

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Date of creation: Jan 1998
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Handle: RePEc:pra:mprapa:14176
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  1. Andrew Abel & Gregory N. Mankiw & Lawrence H. Summers & Richard Zeckhauser, . "Assessing Dynamic Efficiency: Theory and Evidence," Rodney L. White Center for Financial Research Working Papers 14-88, Wharton School Rodney L. White Center for Financial Research.
  2. Richard Disney & Edward Whitehouse, 1994. "Choice of private pension plan and pension benefits in the UK," IFS Working Papers W94/02, Institute for Fiscal Studies.
  3. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection Discussion Papers 20048, The World Bank.
  4. Whitehouse, Edward, 1998. "Pension Reform in Britain," MPRA Paper 14175, University Library of Munich, Germany.
  5. Richard Disney & Edward Whitehouse, 1994. "What are pension plan entitlements worth in Britain?," IFS Working Papers W94/01, Institute for Fiscal Studies.
  6. Zvi Bodie & Alan J. Marcus & Robert C. Merton, 1985. "Defined Benefit versus Defined Contribution Pension Plans: What are the Real Tradeoffs?," NBER Working Papers 1719, National Bureau of Economic Research, Inc.
  7. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
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