IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/14176.html
   My bibliography  Save this paper

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

Author

Listed:
  • Palacios, Robert
  • Whitehouse, Edward

Abstract

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.

Suggested Citation

  • Palacios, Robert & Whitehouse, Edward, 1998. "The Role of Choice in the Transition to a Funded Pension System," MPRA Paper 14176, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14176
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/14176/1/MPRA_paper_14176.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carlos Sales-Sarrapy & Fernando Solis-Soberon & Alejandro Villagomez-Amezcua, 1998. "Pension System Reform: The Mexican Case," NBER Chapters, in: Privatizing Social Security, pages 135-175, National Bureau of Economic Research, Inc.
    2. Whitehouse, Edward, 1998. "Pension reform in Britain," Social Protection Discussion Papers and Notes 20053, The World Bank.
    3. repec:idb:brikps:publication-detail,7101.html?id=26052 is not listed on IDEAS
    4. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 1-19.
    5. Zvi Bodie & Alan J. Marcus & Robert C. Merton, 1988. "Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?," NBER Chapters, in: Pensions in the U.S. Economy, pages 139-162, National Bureau of Economic Research, Inc.
    6. 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.
    7. Bodie, Zvi & Shoven, John B. & Wise, David A. (ed.), 1988. "Pensions in the U.S. Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226062853, September.
    8. Richard Disney & Edward Whitehouse, 1994. "What are pension plan entitlements worth in Britain?," IFS Working Papers W94/01, Institute for Fiscal Studies.
    9. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection Discussion Papers and Notes 20048, The World Bank.
    10. Robert Holzmann, 1997. "Fiscal Alternatives of Moving from Unfunded to Funded Pensions," OECD Development Centre Working Papers 126, OECD Publishing.
    11. Holzmann, Robert, 1997. "On economic benefits and fiscal requirements of moving from unfunded to funded pensions," Financiamiento para el Desarrollo 5250, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    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. Robert Jahoda & Jiøí Špalek, 2009. "Pension Reform through Voluntary Opt-Out: The Czech Case," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 309-333, Oktober.
    2. Whitehouse, Edward, 2000. "Pension reform, financial literacy and public information: a case study of the United Kingdom," MPRA Paper 10323, University Library of Munich, Germany.
    3. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
    4. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
    5. Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
    6. Holzmann, Robert, 1998. "Financing the transition to multipillar," Social Protection Discussion Papers and Notes 20052, The World Bank.
    7. Robert Holzmann & Robert Palacios & Asta Zviniene, 2001. "On the Economics and Scope of Implicit Pension Debt: An International Perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(1), pages 97-129, March.
    8. Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
    9. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
    10. Roy Allen & Norman Bedford & András Margitay‐Becht, 2011. "A “human ecology economics” framework for Eastern Europe," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 38(3), pages 192-208, February.
    11. Acuna R., Rodrigo & Iglesias P., Augusto, 2001. "Chile's pension reform after twenty years," Social Protection Discussion Papers and Notes 24079, The World Bank.
    12. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    13. Estelle James & Alejandra Cox Edwards, 2005. "Do Individual Accounts Postpone Retirement: Evidence from Chile," Working Papers wp098, University of Michigan, Michigan Retirement Research Center.
    14. Demarco, Gustavo & Rofman, Rafael & Whitehouse, Edward, 1998. "Supervising mandatory funded pension systems: issues and challenges," MPRA Paper 16348, University Library of Munich, Germany.
    15. Roberto Rocha & Dimitri Vittas, 2002. "The Hungarian Pension Reform: A Preliminary Assessment of the First Years of Implementation," NBER Chapters, in: Social Security Pension Reform in Europe, pages 365-400, National Bureau of Economic Research, Inc.
    16. Schröder, Carsten, 2012. "Profitability of pension contributions – evidence from real-life employment biographies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(3), pages 311-336, July.
    17. Andrews, Emily S., 2001. "Kazakhstan : an ambitious pension reform," Social Protection Discussion Papers and Notes 23156, The World Bank.
    18. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
    19. Chlon, Agnieszka, 2000. "Pension reform and public information in Poland," Social Protection Discussion Papers and Notes 23142, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds’ structure, performance and investments: cross-country evidence," MPRA Paper 14753, University Library of Munich, Germany.
    2. Whitehouse, Edward, 2000. "Administrative charges for funded pensions : an international comparison and assessment," Social Protection Discussion Papers and Notes 23140, The World Bank.
    3. Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
    4. Gora, Marek & Rutkowski, Michal, 1998. "The quest for pension reform : Poland's security through diversity," Social Protection Discussion Papers and Notes 20111, The World Bank.
    5. James, Estelle, 1998. "New Models for Old-Age Security: Experiments, Evidence, and Unanswered Questions," The World Bank Research Observer, World Bank, vol. 13(2), pages 271-301, August.
    6. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
    7. Alvaro Forteza, 1998. "Los efectos de la Reforma uruguaya de la Seguridad Social en el ahorro," Documentos de Trabajo (working papers) 1098, Department of Economics - dECON.
    8. Michele Boldrin & Juan J. Dolado & Juan F. Jimeno & Franco Peracchi, "undated". "The future of pension systems in Europe. A reappraisal," Working Papers 99-08, FEDEA.
    9. Disney, Richard & Whitehouse, Edward, 1999. "Pension plans and retirement incentives," Social Protection Discussion Papers and Notes 20851, The World Bank.
    10. Dilnot, Andrew & Disney, Richard & Johnson, Paul & Whitehouse, Edward, 1994. "Pensions policy in the UK: An economic analysis," MPRA Paper 10478, University Library of Munich, Germany.
    11. An Chen & Motonobu Kanagawa & Fangyuan Zhang, 2021. "Intergenerational risk sharing in a Defined Contribution pension system: analysis with Bayesian optimization," Papers 2106.13644, arXiv.org, revised Mar 2023.
    12. Rama Malladi, 2022. "HARI: Characteristics of a new defined lifestyle (DL) retirement planning product," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 27(2), pages 147-163, June.
    13. Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, vol. 21(2), pages 207-229, June.
    14. Richard Disney, 1996. "Ageing and saving," Fiscal Studies, Institute for Fiscal Studies, vol. 17(2), pages 83-101, May.
    15. Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
    16. Fernando Perera-Tallo, 2012. "Optimal Retirement Age and Aging Population," 2012 Meeting Papers 728, Society for Economic Dynamics.
    17. Uthoff, Andras, 2006. "Gaps in the welfare State and reforms to pension systems in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    18. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
    19. Anca-Stefania Jijiie & Jennifer Alonso Garcia & Séverine Arnold (-Gaille), 2019. "Mortality by socio-economic class and its impact on the retirement schemes: How to render the systems fairer?," ULB Institutional Repository 2013/300032, ULB -- Universite Libre de Bruxelles.
    20. Richard Disney & Carl Emmerson & Sarah Smith, 2004. "Pension Reform and Economic Performance in Britain in the 1980s and 1990s," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 233-274, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    pensions; funding; pay-as-you-go;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    Statistics

    Access and download statistics

    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:pra:mprapa:14176. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.