The Decumulation (Payout) Phase of Defined Contribution Pillars : Policy Issues in the Provision of Annuities and Other Benefits
Most countries reforming their pension system, focus more on the accumulation phase, than on the decumulation (pay-out), because the number of beneficiaries is likely to be small initially, especially if older workers are discouraged from joining t...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/10/692857/decumulation-payout-phase-defined-contribution-pillars-policy-issues-provision-annuities-other-benefits http://hdl.handle.net/10986/19781 |
| Summary: | Most countries reforming their pension
system, focus more on the accumulation phase, than on the
decumulation (pay-out), because the number of beneficiaries
is likely to be small initially, especially if older workers
are discouraged from joining the new system. Policymakers
place a priority on the new accumulation system being
administratively efficient, and well regulated. But the
decumulation phase must also be well organized, and
efficient. The purpose of pension systems is, after all, to
pay retirement benefits - old age, survivor, and disability
pensions. The authors argue that: 1) Pay-out arrangements
are likely to evolve gradually, through trial and error, as
problems are discovered and tackled. 2) Adverse selection
may not be as great a problem as is sometimes thought. 3)
Many other annuity, and insurance market problems have yet
to be solved, and policies must be formulated to make these
markets work as well. The under-development of voluntary
annuity markets is only partly explained by adverse
selection, argue the authors. Other factors are also at
work: the bequest, and precautionary motives for saving;
individuals' myopia and ignorance; mistrust of
insurance companies; the "luxury good" nature of
annuities; tax policies that favor lump sum withdrawals;
and, last but not least, public policies (such as the offer
of social security pensions and the encouragement of
occupational pension plans) that tend to crowd out
individual annuities. The long-term success of pension
reform depends on vigorous efforts to develop the insurance
industry. Weak and under-developed in most developing
countries, the insurance industry should play a central role
in providing old age, survivor, and disability benefits.
Many policy issues require careful thought, and extensive
empirical analysis: Should annuitization be mandatory, and
at what level? Should indexed (or "real")
annuities be required? Should variable annuities be
permitted, or encouraged? Should joint annuities be
required? How much "group rating" and "risk
classification" should be permitted? |
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