Download Rethinking Pension Reform by Franco Modigliani PDF

By Franco Modigliani

To explain the worldwide debate on social safeguard, the authors identify the fundamental offerings in designating any approach to aid coverage makers increase the method that achieves their many targets. as the luck of reforms depends upon monetary innovation to mitigate key hazards, options are mentioned which exhibit how pension reform offerings impact the success of retirement pursuits. ultimately, the authors study proposed hybrid techniques to teach how their invaluable beneficial properties could be captured via making plans inside a unmarried fund. Hb ISBN (2004) 0-521-83411-2

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8 Growth rate in retired populationsd (%) QC: IYP/... 1 Testing the viability of pension systems in different countries P1: JYD/... CB699-Modigliani-v1 T1: FCH April 22, 2004 22:29 P1: JYD/... P2: FCH/FFX 0521834112c02 QC: IYP/... T1: FCH CB699-Modigliani-v1 A Taxonomy of Pension Reform Issues April 22, 2004 25 There is a perception that merely investing in the stock market can raise returns. Although this is possibly true over a longer horizon, there are periods during which this is not necessarily the case.

An interesting facet is that the benefits are based on the realized rate of income growth, giving the scheme a DC flavor. Most recently, Italy has been experimenting with a reform that allows workers to shift their severance pay fund contributions to individual accounts in common funds of their profession. These investments are for an initial period, after which workers are permitted to switch to the mutual fund of another profession or to funds that are broader. Hence, despite being privately managed individual accounts, there is a limited choice of investment vehicles and a somewhat arbitrary grouping of participants by profession (rather than age, income, or risk-bearing capacity).

However, it is possible that there are short periods when PAYGO is preferred to funding, and the superiority of one system over another may change over time. We address the implications of such a possibility in Chapter 8. Switching between systems may not be feasible, but there are alternative ways to take maximum advantage of the preference for dynamic shifts in systems. Offering low returns on contributions is unsustainable and likely to lead to evasion by participants. Sometimes, redistribution causes the returns credited to one’s account to be much lower than realized returns, and this seepage can be harmful.

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