Collective versus individual pension schemes: A welfare-theoretical perspective

Collective pension contracts allow for intergenerational risk sharingwith the unborn. They therefore imply a higher level of social welfarethan individual accounts. Collective pension contracts also imply a suboptimal allocation of consumption across time periods and states of nature however. Hence, collective pension contracts also reduce social welfare.This paper explores the welfare e ects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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