The politics of pension reform in Canada and the United States

The

politics of pension reform in Canada and the United States

Weaver

R. Kent

Weaver, R. Kent

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College19991999monographic

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

1999

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

Opt-out pensions pose many difficult design and implementation issues. The U.K. experience suggests several valuable lessons for U.S. policymakers. First, complex interactions between public and opt-out pensions may create confusion among workers, leading to both discontent and demands for policy change. Second, allowing recurrent opportunities to opt into and out of individual accounts increases administrative complexity, increases choice complexity for workers, and may undermine system legitimacybut it may also be politically unavoidable. Third, the market may not, unprompted, provide personal pension vehicles that are appropriate retirement savings vehicles for low-earners, especially those who have interrupted earnings records. Fourth, price indexation of wage histories may create pressures for ad hoc policy change. Fifth, increased reliance on means-tested pensions increases administrative complexity and creates perverse incentives for savings and for types of assets held, especially where assets as well as income-tests are involved. Sixth, an option for quasi-privatized pensions leads to pressures to treat those pensions more like fully private pensions with respect to flexibility in withdrawals, inheritability, and ability to borrow against fund balances. Seventh, annuitization costs can add significantly to pension system costs and inequality across cohorts, so the state may want to take on the role of monopoly annuity provider. Eighth, scandals and failures drive policymakers and consumer responses, so it is important to get the policy design right the first time and invest heavily in public understanding of how the reform will work. A final lesson is that scandals, policy tinkering, and uncertainty over pension policy may affect workers propensity to opt out of state pensions in unpredictable waysnot just driving people to exit from the state system.

R. Kent Weaver.

CRR WP1999-4

CRR WP

1999-4

http://crr.bc.edu/images/stories/Working_Papers/wp_1999-04.pdf

MChBEnglisheng

MChB

Englisheng

English

eng