The Gains from Pension Reform

TLDR

The authors classify social security pension systems along three dimensions: actuarial vs. non‑actuarial, funded vs.

Abstract

We classify social security pension systems in three dimensions: actuarial versus non-actuarial, funded versus unfunded, and defined-benefit versus defined contribution systems. Recent pension reforms are discussed in terms of these dimensions. Shifting to a more actuarial system reduces labor-market distortions, although limiting the scope for redistribution. Shifting to a funded system may increase saving, redistribute income to future generations and distort contermporary labor supply. A partial shift to a funded system helps individuals diversify their pension assets. A shift from a defined-benefit to a defined-contribution system means that income risk will be shifted from workers to pensioners.