Abstract
We develop a generalisation of the World Bank (1994) model of forced saving for retirement. This broader model consists of two tiers of second pillar savings – mandated and non-mandated (voluntary). Furthermore, the government can set two types of guarantees on the first (mandated) tier – investment returns and annuity prices – leading to possible cross-subsidisation between the tiers. This has the potential to induce social redistribution, foster a liquid private market for life annuities, and obviate some of the investment risk and annuity price risk that retirees face.
We formulate a quantitative model of financial flows within such a system, which explains the mechanism by which cross-subsidisation occurs. Based on this analysis, a taxonomy of two-tiered retirement systems is presented, that is based on the choices that the government makes.
Original language | English |
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Pages (from-to) | 234-252 |
Number of pages | 19 |
Journal | Annals of Actuarial Science |
Volume | 8 |
Issue number | 2 |
DOIs | |
Publication status | Published - Sept 2014 |
Keywords
- Retirement savings
- Pensions
- Regulation
- Annuitisation