Assessing Fiscal Costs and the Distribution of Pensions in Transitions to FDC and NDC Systems: A Retrospective Analysis for Chile
Countries assessing structural pension reforms to address problems of financial sustainability and improve economic incentives face the choice between moving to a financial defined contribution (FDC) system, or to a notional defined contribution (NDC) system (or one of its variants). Unfortunately, comparisons regarding the performance of the two systems in terms of the pensions provided and transition costs are normally based on prospective actuarial estimations. In this paper, we follow a retrospective approach by simulating what would have happened in Chile if instead of the original FDC system introduced in 1981, the country would have implemented an NDC scheme. We find that transition costs under an FDC system can be considerably higher than under an NDC. In the case of Chile, other things being equal, introducing an NDC system would have generated fiscal savings during the first 45 years after the reform equivalent to 50% of initial GDP. The cost of the minimum pension guarantee would have been higher under an NDC system that pays the growth rate of the covered wage bill. This is because during the first twenty years after the reform the rate of return on financial assets was higher than the growth rate of wages. Our analysis suggests, however, that this does not have to be always the case. Depending on the assumptions regarding the stochastic process driving the dynamics of the rate of return paid by the FDC system, expected replacement rates under the NDC are not necessarily lower.
Private Pension Systems Built on Precarious Foundations: A Cohort Study of Labor-Force Trajectories in Chile
The success of private pension systems to provide old-age security is mainly a function of continuous individual pension contributions linked to formal employment. Using a rich longitudinal dataset from Chile and employing sequence analysis, this study examines the pension contribution histories and formal employment pathways of a cohort of individuals who began their working lives simultaneously to the introduction of the Chilean private pension system in the early 1980s, which pioneered private-oriented pension reforms worldwide. Results show that more than half of the individuals from this cohort developed labor-force trajectories inconsistent with continuous pension contributions and formal employment, which particularly affects women and lower educated people. We conclude that policy and decision makers focused on aging topics should be aware of the increasing diversity and precariousness of labor-force trajectories when evaluating the performance and sustainability of both private and public pension regimes.
Career Choice Inclination of the College Graduates——under the Analytic Framework on the Basis of LMS Theory
Employment difficulty of college graduates has become a social problem in China today.The research group has found that college graduates have a strong inclination in career choice considering units and regions.In terms of China's manpower market and the segmented labor market theory,it is found that their inclination is caused by the great income gap of different regions,the high cost of job transfer,and the sharp differences in social welfare.It is thus obvious that solution to the problem lies with the gradual breakdown of the institutional segment of labor market.