Oxford Review of Economic Policy, volume 22 number 1
PensionsCountries face increasing problems in financing pensions: the insufficiently emphasized good-news story is that people are living longer; but populations are ageing also because of falling birth rates; the costs of health care are rising; and international competitive pressures exert downward pressure on tax rates. There is controversy about the extent of the problem, about the underlying economic theory, and about the best mix of policies to protect old-age security.
This issue of the Oxford Review of Economic Policy* establishes the areas of debate; discusses pension arrangements in different countries; considers the main analytical and empirical issues relevant to thinking about pension design; and assesses a range of policy options. The main conclusions are that what matters most is effective government and economic growth; that the debate between Pay-As-You-Go and funding is secondary; that good pension schemes can take many forms; and that there is a problem in financing pensions, but not a crisis.
The opening paper, by Nicholas Barr, summarizes the issues, and suggests core conclusions. The rest of the volume is divided into two parts. The first group of papers is mainly about general issues. A paper by Nicholas Barr and Peter Diamond sets out the economics of pensions, drawing readers' attention to a series of analytical errors to which much pensions analysis is prone:
- considering one objective in isolation, ignoring the fact that pension systems have multiple objectives;
- improperly assuming a theoretical world with perfect information and no distortions;
- improperly comparing pension systems in steady state, when the real issue is moving from one system to another;
- and ignoring the distributional effects of different types of pension reform.
In subsequent papers, James Banks and Sarah Smith discuss the nature of retirement - a more complicated and multi-dimensional concept than is always realized. David McCarthy discusses the rationale for occupational pensions, anchoring their existence in a series of market imperfections. Administrative costs are a cross-cutting theme. John Nugee and Avinash Persaud offer a radical proposal for reforming the regulatory environment in which pensions currently sit, arguing that the unintended effect of present arrangements is to shift financial risk from where it should be to where it should not.
The second cluster of papers discusses pensions in different countries, chosen to illustrate the wide range of experience. The paper by Peter Whiteford and Edward Whitehouse offers and overview of pension issues and reform strategies in OECD countries, including the new EU member states. Lawrence H. Thompson looks at the historical evolution and current position of the US system, and assesses the recent strident debate on pension reform in the US. The UK, too, is debating options for reform, though in a much more measured way. John Hills, a member of the UK Pensions Commission, sets out the recommendations of the Commission's Second Report and the core analysis that underpins them. Sweden's move to notional defined-contributions pensions is discussed in Annika Sunden's paper, which explains the thinking behind the reforms and assesses some of the main outcomes. Alberta Arenas and Carmelo Mesa Lago assess the 25-year experience in Chile in the broader context of reform in Latin America, concluding that the experience is mixed, but by some margin the most successful in the region.
* Pensions, edited by Christopher Allsopp and Nicholas Barr, Oxford Review of Economic Policy, Vol. 22 No. 1, Spring 2006. Further information on this and other issues of the journal is available from Alison Gomm at the Oxford Review of Economic Policy, Park Central, 40-41 Park End Street, Oxford OX1 1JD, telephone (01865) 792212, fax (01865) 251172, email: firstname.lastname@example.org.
In any reference to the journal or to an article in it, please mention that the Oxford Review of Economic Policy is published by the Oxford University Press.
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