Pension Reform A Short Guide

Author: Nicholas Barr; Peter Diamond
Publisher: Oxford University Press USA
ISBN: 9780195387728
Published In: December 2009
Format: Paperback , 260 pages
Jurisdiction: Chile, China, International ? Disclaimer:
Countri(es) stated herein are used as reference only

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Full understanding of economic theory, including recent advances - bluntly, the theory is as good as it gets;
Awareness that successful reform depends not only on policy design but also on the capacity to implement it;
Extensive experience of studying and working in different countries;
Written so that, despite the book's deep technical roots, it is accessible to a broad social science readership.

This is an abridgement of Barr and Diamond's 'Reforming Pensions: Principles and Policy Choices' (OUP, 2008), a larger book that is intended for policy makers and as a supplement in college courses.
The problem. Mandatory pension systems are a worldwide phenomenon. However, with given contribution rates, monthly benefits and retirement ages, pension systems are not consistent with three long-run trends - declining mortality, declining fertility, and earlier retirement. Thus many systems need reform.
Principles. This book gives an extensive but nontechnical explanation of the economics of pension design. The theoretical arguments have three elements.
1. Pension systems have multiple objectives - consumption smoothing, insurance, poverty relief, and redistribution. Good policy needs to bear them all in mind.
2. Good analysis should be framed in a second-best context - simple economic models are a bad guide to policy design in a world with imperfect information and decision-making, incomplete markets and taxation.
3. Any choice of pension system has distributional consequences, which the book recognizes explicitly.
The analysis includes discussion of labor markets, capital markets, risk sharing and gender and family, with comparison of PAYG and funded systems, recognizing that the suitable level of funding differs by country.
Alongside the economic principles of good design, policy must also take account of a country's capacity to implement the system. Thus the theoretical analysis is complemented by discussion of implementation, and of experiences, both good and bad, in many countries, with particular attention to China and Chile.
Policy conclusions:
1. Sound application of the principles outlined above can and does lead to widely different systems in different country settings.
2. Unless there are transfers from outside the system, any improvement to the finances of a pension system must involve one or more of (a) higher contribution rates, (b) lower monthly pensions, (c) later retirement at the same monthly pension, (d) policies designed to increase national output.
3.The previous statement holds whatever the degree of funding. If a public pension is regarded as unsustainable the problem needs to be addressed directly by one of these methods.

Readership: Policy makers, scholars and students on college courses

Foreword to Principles and policy choices by Professor Lord Stern
Preface
1: The backdrop
2: The basic economics of pensions
3: Pensions and labor markets
4: Finance and funding
5: Redistribution and risk sharing
6: Gender and family
7: Implementing pensions
8: International diversity and change since 1950
9: Pension systems in different countries
10: Close focus: Pension reform in Chile and China
11: Principles and lessons for policy
Glossary
References
Index

Nicholas Barr, London School of Economics and Political Science, and Peter Diamond, Massachusetts Institute of Technology

"This volume distills the accumulated experience of two of the world's leading experts on pension policy. It reports on how a broad cross-section of nations around the globe have grappled with the varied and conflicting objectives of national pension programs. It is a splendid example of something all too rare--the marriage of the best of economic theory and politically and institutionally sensitive observational experience."--Henry J. Aaron, Bruce and Virginia MacLaury Senior Fellow, The Brookings Institution

"I love this book. It is a concise and brilliant analysis of pension reform around the world. I recommend it as a primer for anyone interested in understanding the key issues and policy alternatives."--Zvi Bodie, Norman and Adele Barron Professor of Management, Boston University