October 20, 2014

Collective versus Individual Pension Schemes: a Welfare-Theoretical Perspective

This paper explores the welfare effects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes.
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Collective pension contracts allow for intergenerational risk sharing with the unborn. They therefore imply a higher level of social welfare than individual accounts. Collective pension contracts also imply a sub- optimal allocation of consumption across time periods and states of nature however. Hence, collective pension contracts also reduce social welfare.

This paper explores the welfare effects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes.

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