IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1296.html
   My bibliography  Save this paper

Earnings-related mandatory pensions : concepts for design

Author

Listed:
  • Valdes-Prieto, Salvador
  • DEC

Abstract

The author offers a framework for economic policy on mandatory earnings-related pensions. He does not discuss the gains and losses from mandating insurance and savings, nor the use of this policy as a vehicle for income redistribution. Instead, he concentrates on areas that are less well understood: the microeconomics, the macroeconomics, and the political economy of mandatory pensions. His analysis focuses on three main areas: insurance design, privatization, and degree of funding. In each area, he provides a checklist of design issues, drawn from international experience and economic analysis. For insurance, there are two sets of choices: between flat actuarial factor or individual actuarial factor and between defined benefit or defined contribution (in the sense of financial guarantee). For privatization, the essential choices are between private or nationalized provision, and between private or national demand. For funding, the choices are between funding or not funding, and between apparent funding or pay-as-you-go financing. Some combinations can be discarded. Privatization should not be combined with flat actuarial factors, for example, because private suppliers will compete for access to rents that accrue to workers who are awarded implicit subsidies. Privatization is compatible with apparent funding, but not with pay-as-you-go financing, because in the latter there are no funds to invest in the capital market. The policy choice is ultimately between two coherent designs whose relative advantages and drawbacks the author discusses. One, is an individual actuarial factor with privatized production and demand, with risk explicitly allocated to pensions, and with partial funding. Two, is a flat actuarial factor coupled with nationalized production, pay-as-you-go financing, and statutory promises of fixed real pensions (defined benefit).

Suggested Citation

  • Valdes-Prieto, Salvador & DEC, 1994. "Earnings-related mandatory pensions : concepts for design," Policy Research Working Paper Series 1296, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1296
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1994/04/01/000009265_3961006101108/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-1254, November.
    2. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    3. Brugiavini, Agar, 1993. "Uncertainty resolution and the timing of annuity purchases," Journal of Public Economics, Elsevier, vol. 50(1), pages 31-62, January.
    4. Salvador Valdés & Peter Diamond, "undated". "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Eduardo Walker, 1993. "Desempeño Financiero de las Carteras Accionarias de los Fondos de Pensiones en Chile ¿Ha Tenido Desventajas ser Grandes?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(89), pages 35-76.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vittas, Dimitri, 1997. "The Argentine pension reform and its relevance for Eastern Europe," Policy Research Working Paper Series 1819, The World Bank.
    2. Peter Diamond, 1993. "Privatization of Social Security: Lessons from Chile," NBER Working Papers 4510, National Bureau of Economic Research, Inc.
    3. Arrau, Patricio & Schmidt-Hebbel, Klaus, 1995. "Pensions systems and reform : country experiences and research issues," Policy Research Working Paper Series 1470, The World Bank.
    4. Shah, Hemant, 1997. "Toward better regulation of private pension funds," Policy Research Working Paper Series 1791, The World Bank.
    5. Vittas, Dimitri, 1997. "Private pension funds in Argentina's newintegrated pension system," Policy Research Working Paper Series 1820, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1296. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.