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Government guarantees on pension fund returns

Author

Listed:
  • Pennacchi
  • Pennacchi, George

Abstract

This report reviews defined contribution pension return guarantees typically made by governments in connection with pension privatizations. Finance theory related to the pricing of options provides a unifying framework for evaluating the cost of these guarantees. The report considers two types of guarantees on the rate of return earned by an individual pension fund: a guarantee of a fixed minimum rate of return; and a guarantee of a minimum rate of return that is set relative to the performance of other pension funds. A minimum pension benefit guarantee for a participant in a mandatory defined contribution pension plan is also discussed. Costs for each of these guarantees are illustrated using typical parameter values.

Suggested Citation

  • Pennacchi & Pennacchi, George, 1998. "Government guarantees on pension fund returns," Social Protection Discussion Papers and Notes 20049, The World Bank.
    • Handle: RePEc:wbk:hdnspu:20049
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    References listed on IDEAS

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    1. Monika Queisser, 1995. "Chile and beyond: The second‐generation pension reforms in Latin America," International Social Security Review, John Wiley & Sons, vol. 48(3‐4), pages 23-39, July.
    2. Christopher M. Lewis & George Pennacchi, 1994. "The value of Pension Benefit Guaranty Corporation insurance," Proceedings, Federal Reserve Bank of Cleveland, pages 735-756.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Cooperstein Richard L. & Pennacchi George G. & Redburn F. Stevens, 1995. "The Aggregate Cost of Deposit Insurance: A Multiperiod Analysis," Journal of Financial Intermediation, Elsevier, vol. 4(3), pages 242-271, July.
    5. James E. Pesando, "undated". "The Government's Role in Insuring Pensions," Pension Research Council Working Papers 94-16, Wharton School Pension Research Council, University of Pennsylvania.
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    Cited by:

    1. World Bank & International Monetary Fund, 2005. "Financial Sector Assessment : A Handbook," World Bank Publications - Books, The World Bank Group, number 7259.

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