Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

A Two-Step Mixed Pension System: How to Reinvent Social Security with the Help of Notional Accounts and Term Annuities

By Inmaculada Domínguez-Fabián,Pierre Devolder, Francisco del Olmo García, Jose A Herce

The change in economic and sociodemographic reality, characterized by a continuous increase in longevity, the consequences of the economic crisis, and the lack of adequate adjustments of social security retirement pension systems everywhere, entails risks for workers and the social security systems themselves. Many reforms of public pension systems have been carried out in recent years, based on modifying system parameters and structural changes. Some reforms aim at increasing capitalization in the determination of the final pension through a life annuity to complement the public retirement pension as a second retirement income. Against the background of the change of agents’ behaviors throughout the life cycle and the presence of an adverse selection problem in the annuities market, we describe in this paper a two-step mixed pension system that tries to solve the pressure that increasing longevity is putting on pension schemes to provide adequate and sustainable pensions for all. In our two-step mixed system, when workers reach their ordinary retirement age they receive a term annuity generated by their previous capitalized savings to be replaced by a social security defined contribution pure life annuity when the so-called grand age is reached. The analysis is carried out from an individual perspective, through the internal rate of return that workers will receive after ordinary retirement in both schemes compared with the one they would get with the same contributions in the current situation. We also analyze some possible transition strategies to the new system.

Source: SSRN