By Milton Friedman & Rose e Friedman The international bestseller on the extent to which personal freedom has been eroded by government regulations and agencies while personal prosperity has been undermined by government spending and economic controls. Get the book HERE!
The government’s long-term economic plan is providing the foundations for the UK’s future economic security. A key part of this is to foster a new culture of saving. Saving must be flexible and attractive in order to encourage people to take greater responsibility for their financial future. And people need to have access to the best advice. Nowhere is this more important than in saving for a pension and planning for retirement. When this Government took office the pensions system...
By Waldo Tapia & Juan Yermo In individual account pension systems, members bear the risks and consequences of their investment decisions. If participants behave as predicted by economic theory, such responsibility would be welfare enhancing as members would invest and hold a portfolio of financial assets with a risk-return combination consistent with their investment horizon, degree of risk aversion and the portfolio of other assets they hold, including their human capital and, where relevant, their home. Behavioural economists and empirical...
By Edina Rozinka & Waldo Tapia A recent trend in individual accounts schemes is the introduction and expansion of investment alternatives to plan members. The goal of investment choice is to enable plan members to select the optimal investment portfolio that matches their particular risk-return preference and ultimately, maximizes their retirement income. This document focuses on some key analytical and policy issues regarding investment choice by pension plan/fund members in occupational defined contribution and personal pension arrangements during the accumulation...
By James J. Choi, David Laibson, Brigitte C. Madrian & Andrew Metrick Over the last 20 years, defined-contribution pension plans have gradually replaced defined benefit pension plans as the primary privately sponsored vehicle to provide retirement income. At year-end 2000, employers sponsored over 325,000 401(k) plans with more than 42 million active participants and $1.8 trillion in assets.1 The growth of 401(k)-type savings plans and the associated displacement of defined benefit plans have generated new concerns about the adequacy of employee...
By Peter R. Orszag & Joseph E. Stiglitz Averting the Old Age Crisis, the World Bank's path-breaking publication on pensions, trenchantly notes that "myths abound in discussions of old age security."2 This paper examines ten such myths in a deliberately provocative manner. Our hope is not only to spur debate during this "New Ideas About Old Age Security" conference, but more broadly to ensure that policy-makers understand the complexity of pension reform. It is testimony to the power of Averting the Old...
By Olga Fuentes, Pamela Searle & Félix Villatoro This paper studies the investment decisions of members of the Chilean DC pension System using administrative data. Since 2002, members of the system have had the opportunity to choose between five different types of funds. However they have made little voluntary changes. This reinforces the importance of establishing adequate default investment allocations for affiliates. We characterize and study the performance of those affiliates that make changes and find that they are mostly...
As the proportion of retirement income provided by private pensions becomes increasingly important, the quality and effectiveness of their supervision becomes more and more crucial. The IOPS Working Paper Series, launched in August 2007, highlights a range of challenges to be met in the development of national pension supervisory systems.The papers review the nature and effectiveness of new and established pensions supervisory systems, providing examples, experiences and lessons learnt for the benefit of IOPS members and the broader pensions...
By Raj Chetty, John N. Friedman, Soren Leth-Petersen, Torben Nielsen, Tore Olsen Using 41 million observations on savings for the population of Denmark, we show that the impacts of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice. Subsidies for retirement accounts, which rely upon individuals to take an action to raise savings, primarily induce individuals to shift assets from taxable accounts to retirement accounts. We estimate that each $1 of...
By Alistair Byrne (University of Edinburgh) This paper uses data from a survey of the members of a UK defined contribution pension plan to explore the attitudes and knowledge of employees faced with pension saving and investment decisions. The results are consistent with behavioural economics in that many employees show limited interest in their pension arrangements. Not all members have received advice about their pension, but those who have are more likely to have calculated their savings needs, to have...
