Reforming Pensions

By N. Barr, Peter A. Diamond. Social Science Research Network, 2009

246 citations recorded by the source corpus.

This article, based on two books (Barr and Diamond 2008, forthcoming), sets out a series of principles for pension design rooted in economic theory: pension systems have multiple objectives, analysis should consider the pension system as a whole, analysis should be framed in a second-best context, different systems share risks differently, and systems have different effects by generation and by gender. That discussion is reinforced by identification of a series of widespread analytical errors – errors that appear in World Bank work, but by no means only in World Bank work: tunnel vision, improper use of first-best analysis, improper use of steady-state analysis, incomplete analysis of implicit pension debt, incomplete analysis of the impact of funding (including excessive focus on financial flows, failure to consider how funding is generated, and improper focus on the type of asset in trust funds), and ignoring distributional effects. The second part of the article considers implications for policy: there is no single best pension design; earlier retirement does little or nothing to reduce unemployment; unsustainable pension promises need to be addressed directly; a move from PAYG towards funding in a mandatory system may or may not be welfare improving; and implementation matters – policy design that exceeds a country’s capacity to implement it is bad policy design. We illustrate the ranges of designs of pension systems that fit the fiscal and institutional capacity constraints typical at different levels of economic development. The potential gains from simplicity imply that a country capable of implementing an administratively demanding plan does not necessarily gain from doing so. New Zealand has a simple pension system through choice, not constraint.

Subfields: Accounting, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/b0d2042b23627221500f6214f526bbef9ebf8e94

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Citations in the corpus

Pension privatization in crisis: Death or rebirth of a global policy trend? (2011, unknown): “Barr and Diamond (2009, 2010) provide a comprehensive discussion of pension reform options in the context of the several competing objectives of pension systems, including income-smoothing over the life cycle, redistribution, and poverty reduction.”
Retirement Security in an Aging Population (2014, background): “The study of pension policy by Barr and Diamond (2008) illustrates the many trade-offs that policy-makers must confront in designing both public retirement support programs and the retirement saving structures that complement them, and illustrates these trade-offs with a range of country studies.”
Long‐term Care: A Suitable Case for Social Insurance (2010, background): “There is ample evidence from the pensions literature, drawing on lessons from the economics of information (Barr and Diamond 2008: box 4.2) and behavioural economics (2008: box 9.6), that when choices are complex, people make bad choices or no choice at all.”