THE STRENGTHS AND FAILURES OF INCENTIVE MECHANISMS IN NOTIONAL DEFINED CONTRIBUTION PENSION SYSTEMS

Public pension systems based on the Notional Defined Contribution (NDC) principle were introduced during the '90s in Italy, Sweden and Poland. They should realize actuarial equity and incentive neutrality. However, when one considers the presence of NDC pensions together with minimum and social...

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Bibliographic Details
Published in:Giornale degli economisti e annali di economia 2012-10, Vol.71(Anno 125) (1), p.33-70
Main Authors: Marano, Angelo, Mazzaferro, Carlo, Morciano, Marcello
Format: Article
Language:English
Subjects:
Age
Countries
Employee pension plans
Equity
Income taxes
Italy
Neutrality
Old age benefits
Pension contributions
Pension plans
Pension schemes
Pensions
Poland
Private pensions
Public pensions
Retirement
Retirement age
Simulation
Sweden
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Summary:Public pension systems based on the Notional Defined Contribution (NDC) principle were introduced during the '90s in Italy, Sweden and Poland. They should realize actuarial equity and incentive neutrality. However, when one considers the presence of NDC pensions together with minimum and social assistance pensions, this is no longer true and a regressive feature of NDC systems emerges. We examine the extent of such incentive problem in all three countries mentioned and discuss how it could be addressed by changing the cumulation rules for social assistance and NDC pensions. In the Italian case, the use dynamic micro-simulation model, allows us to examine the incentive issue also in its distributive and financial aspects. The same model allows us to also assess some major effects of the December 2011 pension reform, which, however, being very prescriptive, could show some side-effects on the incentive and distributional aspects we focus on.
ISSN:0017-0097