Addressing the Legacy Costs in an NDC Reform: Conceptualization, Measurement, Financing

24 Pages Posted: 8 Nov 2010

See all articles by Robert Holzmann

Robert Holzmann

University of Malaya; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); World Bank

Alain Jousten

University of Liege; IZA Institute of Labor Economics; Netspar; International Monetary Fund (IMF)

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Abstract

The paper provides a framework for the conceptualization, definition and estimation of legacy costs that need to be addressed in a reform that transforms an unfunded defined contribution (NDB) scheme into a notional (or non-financial) defined contribution (NDC) scheme. As the new contribution rate is fixed and, perhaps, reduced, paying for the accrued to date liabilities leaves a financing gap that needs to be estimated and financed, best outside the pension system if a less distorting financing form is available. The paper illustrates the proposed measurement approach with broad estimates under a hypothetical NDC reform in China.

Keywords: legacy costs, pension reform, NDC, coverage expansion

JEL Classification: H55, H68, J21, J26

Suggested Citation

Holzmann, Robert and Jousten, Alain, Addressing the Legacy Costs in an NDC Reform: Conceptualization, Measurement, Financing. IZA Discussion Paper No. 5296, Available at SSRN: https://ssrn.com/abstract=1704269

Robert Holzmann (Contact Author)

University of Malaya ( email )

University of Malaya
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Alain Jousten

University of Liege ( email )

Place des Orateurs 3
Batiment B31
4000 Liege
Belgium
+32 4 366 3198 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

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