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Government mandated private pensions: a dependable foundation for retirement security?

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  • Rowena A. Pecchenino
  • Patricia S. Pollard

Abstract

We develop a model of an overlapping generations economy characterized by private pensions where risk averse agents face both longevity and investment risks. The government mitigates the effects of longevity risk by mandating that individuals purchase annuities. Investment risk arises since the returns on annuities deviate randomly from actuarial fairness as a result of differences in the costs of administering pension funds. Thus, identical agents' pensions may yield drastically different returns: the government's pension policy is not horizontally equitable. We examine whether policies exist that can achieve horizontal equity, and discuss the costs and benefits of implementing these policies.

Suggested Citation

  • Rowena A. Pecchenino & Patricia S. Pollard, 2001. "Government mandated private pensions: a dependable foundation for retirement security?," Working Papers 1999-012, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1999-012
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    References listed on IDEAS

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    More about this item

    Keywords

    Social security; Pensions; Retirement;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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