nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒09‒03
three papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Effects of pension system reform on individuals' decisions. By Quintanilla, X.
  2. The Impact of the Financial Crisis on Defined Benefit Plans and the Need for Counter-Cyclical Funding Regulations By Juan Yermo; Clara Severinson
  3. On Effects of Pension - a comparative dynamic analysis - By Takao Fujii; Fumiaki Hayashi; Jun Iritani

  1. By: Quintanilla, X.
    Abstract: In 1981 Chile was the fi…rst country in the world to privitise its pension system moving from a pay-as-you-go scheme (PAYG) to a De…fined Contributions (DC) scheme. Individuals in the labour market at the time of the reform were given the choice to either stay in the PAYG system or to opt-out to the DC scheme. New entrants must join the DC system. Exploiting the wide differences in pension formulas across schemes, I …firstly fi…nd that the reform signi…ficantly increased expected pension wealth for most of those who opted-out. I then investigate the extent to which households substitute this increase by decreasing accumulation of other wealth. As the decision to either stay or to opt-out was not random, I gain identi…fication through an instrumental variable approach. I …find a pension offset of around 30%. Among the possible reasons for the incomplete offset are imperfect information, the desire to compensate for new risks faced and habit formation. Lastly, through a non-linear random effects dynamic model that allows for state dependence and unobserved heterogeneity, I estimate the effect of pension system design on individuals' formal/informal labour market decisions. Results indicate that individuals in the DC scheme are 23% more likely to be formal than those in the PAYG scheme at any one period. Further, simulations show that the boost in formality caused by the reform lasts throughout the life cycle. State dependence is even more important indicating that labour market past decisions do affect future ones. The unobserved heterogeneity is also high and signifi…cant but it is only a …fifth of the state dependence. The results on state dependence and initial condition suggest that there is scope for public policy to affect formality decisions.
    Date: 2010–07–28
  2. By: Juan Yermo; Clara Severinson
    Abstract: Three essential goals of pension plan funding are the long-term viability, stability and security of member benefits. Reform of funding regulations for defined benefit (DB) pension schemes to make them more counter-cyclical in nature can help achieve these goals as well as make DB schemes more attractive to plan sponsors that are increasingly moving away from DB towards defined contribution plans. If designed properly, funding regulations could help maintain DB systems for the long-term and provide greater member security. Broadly speaking, DB funding regulations should (i) encourage deficit reduction contributions and appropriate build up of surplus when plan sponsor finances are strong; (ii) help maintain predictable costs and dampen volatility; and, (iii) give plan sponsors more control to manage risks and costs. This paper discusses the impact of the crisis on DB pension schemes and the temporary responses taken by regulators to help ease financially strained plan sponsors. Furthermore, the paper presents suggestions to governments and policy-makers for making funding regulations more counter-cyclical in nature. Such measures could strengthen the security of DB benefits and help to maintain DB plans for future workers.<P>Répercussions de la crise financière sur les plans à prestations définies et nécessité d’imposer des règles de financement à caractère anticyclique<BR>Le financement des plans de retraite obéit à trois objectifs essentiels : viabilité à long terme, stabilité et sécurité des prestations servies aux adhérents. Réformer les règles de financement des régimes de retraite à prestations définies pour renforcer leur nature anticyclique peut contribuer à atteindre ces objectifs et à rehausser leur attrait pour les promoteurs des plans qui s’en détournent de plus en plus au profit des dispositifs à cotisations définies. Si elles sont bien conçues, ces règles de financement pourraient permettre de préserver les systèmes à prestations définies sur un horizon lointain et d’apporter aux adhérents une sécurité accrue. D’une manière générale, les règles de financement des mécanismes à prestations définies doivent (i) favoriser la fixation de cotisations de nature à réduire le déficit de financement, ainsi que la constitution d’excédents à bon escient lorsque la situation financière du promoteur du plan est satisfaisante ; (ii) favoriser la prévisibilité des coûts et atténuer les phénomènes d’instabilité ; et (iii) donner davantage de latitude aux promoteurs pour gérer les risques et les coûts. Le présent document contient une analyse des répercussions de la crise sur les régimes de retraite à prestations définies, ainsi que des mesures provisoires adoptées par les autorités de tutelle pour aider les promoteurs de plans qui connaissent des difficultés financières. On y trouvera également des propositions utiles aux pouvoirs publics et aux décideurs pour accentuer le caractère anticyclique des règles de financement. De telles mesures pourraient accroître la sécurité des prestations servies par les dispositifs à prestations définies et contribuer à préserver ces plans pour les travailleurs de demain.
    Keywords: pensions, regulation, funding, contribution, deficit, defined benefit, financial crisis, counter-cyclical, marked-to-market, surplus, réglementation, retraites, financement, cotisation, déficit, crise financière, prestations définies, anticyclique, valorisation au prix du marché, excédent
    JEL: D21 E32 G15 G23 G32 J33 K20 M40 M52
    Date: 2010–07
  3. By: Takao Fujii (Graduate School of Economics, Kobe University); Fumiaki Hayashi (Graduate School of Economics, Kobe University); Jun Iritani (Graduate School of Economics, Kobe University)
    Date: 2010–08

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