Reforming Pensions : Principles and Policy Choices
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[A] well informaed, timely and authoritative examination of the best way to meet the challenge of pension provision in an ageing society. (The Journal of Ageing and Society )
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Mandatory pensions are a worldwide phenomenon. However, with fixed contribution rates, monthly benefits, and retirement ages, pension systems are not consistent with three long-run trends: declining mortality, declining fertility, and earlier retirement. Many systems need reform. This book gives an extensive nontechnical explanation of the economics of pension design. The theoretical arguments have three elements: * Pension systems have multiple objectives--consumption smoothing, insurance, poverty relief, and redistribution. Good policy needs to bear them all in mind. * Good analysis should be framed in a second-best context-- simple economic models are a bad guide to policy design in a world with imperfect information and decision-making, incomplete markets and taxation. * Any choice of pension system has risk-sharing and distributional consequences, which the book recognizes explicitly. Barr and Diamond's analysis includes labor markets, capital markets, risk sharing, and gender and family, with comparison of PAYG and funded systems, recognizing that the suitable level of funding differs by country. Alongside the economic principles of good design, policy must also take account of a country's capacity to implement the system. Thus the theoretical analysis is complemented by discussion of implementation, and of experiences, both good and bad, in many countries, with particular attention to Chile and China.
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Most Helpful Customer Reviews
1 of 1 people found the following review helpful
Format:Hardcover
A readable and very informative account by two acknowledged experts. It explains how state and private pensions operate and the crises they face today. Comparisons with other countries' pension systems are used to highlght these problems and point the way to possible solutions. Through no fault of the authors, the book doesn't say much about the very recently announced reforms that follow from the Adair Report. Nevertheless,it's a valuable account and source of material.
Most Helpful Customer Reviews on Amazon.com (beta)
Amazon.com:
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6 May 2012
Format:Hardcover|Amazon Verified Purchase
This is a great book for specialists and laypersons alike. The authors spend the first two hundred pages discussing the factors which should be taken into account when designing improvements in pension plans. Their conclusion is that there is no single "best" design, and that choices should depend on each country (or sponsor's) individual circumstances. While this may seem unsatisfactory, it is honest. And along the way the authors provide many insights that policy-makers would do well to keep in mind.
The last hundred pages present two case studies of pension reform, in Chile and China. Not coincidentally, the authors were consultants for both. I found this part much less enlightening than the first part.
The authors state that pension plans have two main objectives: (1) Smoothing of consumption, i.e. enabling one to save for one's old age; a related subobjective is providing insurance against running out of money if one lives longer than expected (2) Redistribution of income among different age groups (cohorts), and other classes of people in a society (or company); a related subobjective is alleviation of poverty. While there are many books out there treating the first -- smoothing of consumption -- the second objective -- redistribution -- is often overlooked. This books explores it in detail.
The result is an economic analysis of various aspects of pension plans. So for example the authors discuss pay-as-you-go versus funding by designating assets -- the choice has redistribution implications that may be surprising, as well as impacts on economic growth in general. Or whether benefits should be based on the earnings of the last few years versus lifetime earnings -- the former turns out to redistribute income from lower income workers to higher income workers. Or the role of individual accounts versus voluntary or mandatory group schemes -- e.g. 401s versus social security.
While the analysis is from the point of view of economics, it is non-technical. The authors use very few formulas and these are relegated to boxes where they can be ignored by the reader without any loss, in my opinion. However, this comes at a price. The authors make many assertions without showing why they are true. Either the reader takes the truth on faith, or he pursues the literature through the books and articles cited meticulously by the authors. Most readers will just trust the authors, I suspect.
Another aspect of this book worth noting is that it does not cover actuarial, financial or accounting aspects except at an extremely high level. If you want to understand a life contingency table, you'll have to go elsewhere.
Finally, the authors cover a lot of ground in just two hundred pages. As a result, the material is quite dense. But the slog is well worth it, in my opinion.
The last hundred pages present two case studies of pension reform, in Chile and China. Not coincidentally, the authors were consultants for both. I found this part much less enlightening than the first part.
The authors state that pension plans have two main objectives: (1) Smoothing of consumption, i.e. enabling one to save for one's old age; a related subobjective is providing insurance against running out of money if one lives longer than expected (2) Redistribution of income among different age groups (cohorts), and other classes of people in a society (or company); a related subobjective is alleviation of poverty. While there are many books out there treating the first -- smoothing of consumption -- the second objective -- redistribution -- is often overlooked. This books explores it in detail.
The result is an economic analysis of various aspects of pension plans. So for example the authors discuss pay-as-you-go versus funding by designating assets -- the choice has redistribution implications that may be surprising, as well as impacts on economic growth in general. Or whether benefits should be based on the earnings of the last few years versus lifetime earnings -- the former turns out to redistribute income from lower income workers to higher income workers. Or the role of individual accounts versus voluntary or mandatory group schemes -- e.g. 401s versus social security.
While the analysis is from the point of view of economics, it is non-technical. The authors use very few formulas and these are relegated to boxes where they can be ignored by the reader without any loss, in my opinion. However, this comes at a price. The authors make many assertions without showing why they are true. Either the reader takes the truth on faith, or he pursues the literature through the books and articles cited meticulously by the authors. Most readers will just trust the authors, I suspect.
Another aspect of this book worth noting is that it does not cover actuarial, financial or accounting aspects except at an extremely high level. If you want to understand a life contingency table, you'll have to go elsewhere.
Finally, the authors cover a lot of ground in just two hundred pages. As a result, the material is quite dense. But the slog is well worth it, in my opinion.
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