Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions
Different types of pension involve different kinds of uncertainty. For example, public sector pension schemes involve a 'policy risk', that the scheme might be reformed in the future so that benefits turn out differently than expected. Pr...
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| Format: | Brief |
| Language: | English |
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Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2005/01/6259019/guarantees-counting-cost-guaranteeing-defined-contribution-pensions http://hdl.handle.net/10986/11239 |
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okr-10986-112392021-04-23T14:02:54Z Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions World Bank ANNUITY ASSET MANAGER BENEFIT LEVEL CAPITAL MARKETS DEFINED CONTRIBUTION PLANS DEPOSITS FINANCIAL RISK FUNDED COMPONENT FUNDED PENSIONS GOVERNMENT GUARANTEES INFLATION INFLATION RATES INSURANCE INVESTMENT PERFORMANCE INVESTMENT RETURNS LATIN AMERICAN MARKET RISK MORAL HAZARD PENSION FUND PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SCHEMES PENSION SYSTEM PENSIONS PRICING MODELS PRIVATE PENSION PRIVATE PENSION FUNDS PROVIDENT FUNDS PUBLIC POLICY PUBLIC SCHEMES RATES REPLACEMENT RATES RESERVES RETIREMENT RETIREMENT INCOME RISK SHARING SAVINGS SOCIAL PROTECTION TRANSPARENCY Different types of pension involve different kinds of uncertainty. For example, public sector pension schemes involve a 'policy risk', that the scheme might be reformed in the future so that benefits turn out differently than expected. Private pension schemes are less subject to this policy risk, because governments are unlikely to confiscate private property. But defined-contribution pensions do involve capital-market risk during the accumulation phase, when contributions and investment returns build up in the fund. The risk is that the pension fund's performance is insufficient to give an individual member an adequate retirement income. This note reviews the different types of guarantees, suggesting guarantees of the returns from funded pensions can gain support for reform; but poorly designed guarantees can undermine it, and create large liabilities. The cost of guarantees should be made as transparent as possible, while option-pricing models can be used to illustrate the cost of guarantees, to inform the decision to offer guarantees, the type of guarantee, and how large it should be. Transparent financing of guarantees is best served by forcing funds to put aside their own assets; this also provides better incentives for fund managers. 2012-08-13T14:32:02Z 2012-08-13T14:32:02Z 2005-01 http://documents.worldbank.org/curated/en/2005/01/6259019/guarantees-counting-cost-guaranteeing-defined-contribution-pensions http://hdl.handle.net/10986/11239 English World Bank Pension Reform Primer Series CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Washington, DC Publications & Research :: Brief Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ANNUITY ASSET MANAGER BENEFIT LEVEL CAPITAL MARKETS DEFINED CONTRIBUTION PLANS DEPOSITS FINANCIAL RISK FUNDED COMPONENT FUNDED PENSIONS GOVERNMENT GUARANTEES INFLATION INFLATION RATES INSURANCE INVESTMENT PERFORMANCE INVESTMENT RETURNS LATIN AMERICAN MARKET RISK MORAL HAZARD PENSION FUND PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SCHEMES PENSION SYSTEM PENSIONS PRICING MODELS PRIVATE PENSION PRIVATE PENSION FUNDS PROVIDENT FUNDS PUBLIC POLICY PUBLIC SCHEMES RATES REPLACEMENT RATES RESERVES RETIREMENT RETIREMENT INCOME RISK SHARING SAVINGS SOCIAL PROTECTION TRANSPARENCY |
| spellingShingle |
ANNUITY ASSET MANAGER BENEFIT LEVEL CAPITAL MARKETS DEFINED CONTRIBUTION PLANS DEPOSITS FINANCIAL RISK FUNDED COMPONENT FUNDED PENSIONS GOVERNMENT GUARANTEES INFLATION INFLATION RATES INSURANCE INVESTMENT PERFORMANCE INVESTMENT RETURNS LATIN AMERICAN MARKET RISK MORAL HAZARD PENSION FUND PENSION FUND MANAGERS PENSION FUNDS PENSION REFORM PENSION REFORMS PENSION SCHEMES PENSION SYSTEM PENSIONS PRICING MODELS PRIVATE PENSION PRIVATE PENSION FUNDS PROVIDENT FUNDS PUBLIC POLICY PUBLIC SCHEMES RATES REPLACEMENT RATES RESERVES RETIREMENT RETIREMENT INCOME RISK SHARING SAVINGS SOCIAL PROTECTION TRANSPARENCY World Bank Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| relation |
World Bank Pension Reform Primer Series |
| description |
Different types of pension involve
different kinds of uncertainty. For example, public sector
pension schemes involve a 'policy risk', that the
scheme might be reformed in the future so that benefits turn
out differently than expected. Private pension schemes are
less subject to this policy risk, because governments are
unlikely to confiscate private property. But
defined-contribution pensions do involve capital-market risk
during the accumulation phase, when contributions and
investment returns build up in the fund. The risk is that
the pension fund's performance is insufficient to give
an individual member an adequate retirement income. This
note reviews the different types of guarantees, suggesting
guarantees of the returns from funded pensions can gain
support for reform; but poorly designed guarantees can
undermine it, and create large liabilities. The cost of
guarantees should be made as transparent as possible, while
option-pricing models can be used to illustrate the cost of
guarantees, to inform the decision to offer guarantees, the
type of guarantee, and how large it should be. Transparent
financing of guarantees is best served by forcing funds to
put aside their own assets; this also provides better
incentives for fund managers. |
| format |
Publications & Research :: Brief |
| author |
World Bank |
| author_facet |
World Bank |
| author_sort |
World Bank |
| title |
Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| title_short |
Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| title_full |
Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| title_fullStr |
Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| title_full_unstemmed |
Guarantees - Counting the Cost of Guaranteeing Defined Contribution Pensions |
| title_sort |
guarantees - counting the cost of guaranteeing defined contribution pensions |
| publisher |
Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2005/01/6259019/guarantees-counting-cost-guaranteeing-defined-contribution-pensions http://hdl.handle.net/10986/11239 |
| _version_ |
1764416021635006464 |