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.
Transparency and Competition in the Choice of Pension Products: The Chilean and UK Experience
The growing importance of defined contribution (DC) pension plans is focusing attention on the decumulation or payout phase of pension systems. Where annuitization is encouraged or mandatory, how to ensure that individuals get the best price for annuity products is key. The complicated nature of these decisions means that purchases are highly dependent on the information and advice provided by the sellers of these products. This can be a problem where annuity providers are already involved in the preretirement, accumulation phase, leaving individuals open to abuse if ‘locked-in’ and not able to ‘shop around’ to find a better annuity rate from alternative providers. This paper discusses two countries building centralized information and quotation systems for annuity products to help individuals select the right retirement product at the right price. The SCOMP system in Chile is examined and developments around the Open Market Option (OMO) in the UK are discussed, with lessons drawn for other pension supervisory authorities contemplating introducing such centralized systems.
Determination of Optimal Ball-Burnishing Parameters for Plastic Injection Moulding Steel
The objective of this study is to determine the optimal plane ball-burnishing parameters for plastic injection moulding steel PDS5 on a machining centre by utilising the Taguchi’s orthogonal array method. The design and manufacture of a burnishing tool are described. Four burnishing parameters, namely the ball material, burnishing speed, burnishing force and feed, were selected as the experimental factors in Taguchi’s design of experiments to determine the optimal burnishing parameters which have the dominant influence on surface roughness. The optimal burnishing parameters were found after carrying out the experiments specified by Taguchi’s L18 orthogonal table, by the analysis of variation, and by a full factorial experiment. The optimal plane burnishing parameters for the plastic injection moulding steel PDS5 were a combination of a tungsten carbide ball, a burnishing speed of 200 mm/min, a burnishing force of 300 N and a feed of 40 μm. The surface roughness Ra of the specimen can be improved from about 1 μm to 0.07 μm by using the optimal burnishing parameters for plane burnishing.