The Politics of NDC Pension Scheme Diffusion: Constraints and Drivers

Abstract

Nonfinancial defined contribution (NDC) schemes offer governments desirable properties in terms of efficiency, fairness, and financial sustainability and an opportunity to deflect the blame for pension cuts. Yet adoptions of NDC schemes largely ground to a halt and several countries retreated from NDC implementation after legislation. Lack of support from powerful international actors is partly to blame, as is the perceived rigidity of NDC in reducing room for policy maneuver. Correct implementation requires substantial administrative capacity. Less demanding automatic stabilizing mechanisms undercut the appeal of NDC in the European Union. Thus, while being an important option for policy makers and a benchmark against which to measure alternative reforms, NDC is unlikely to become the dominant pension design choice anytime soon. ABSTRACTNonfinancial defined contribution (NDC) schemes offer governments desirable properties in terms of efficiency, fairness, and financial sustainability and an opportunity to deflect the blame for pension cuts. Yet adoptions of NDC schemes largely ground to a halt and several countries retreated from NDC implementation after legislation. Lack of support from powerful international actors is partly to blame, as is the perceived rigidity of NDC in reducing room for policy maneuver. Correct implementation requires substantial administrative capacity. Less demanding automatic stabilizing mechanisms undercut the appeal of NDC in the European Union. Thus, while being an important option for policy makers and a benchmark against which to measure alternative reforms, NDC is unlikely to become the dominant pension design choice anytime soon.

Comparison of the World’s Best Pension Systems: The Lesson for Indonesia

“…However, while AAM may enhance pension funding, depending on its design, it may not be adequate to offer long-term financial sustainability, and some may be politically challenging to continue over time. The administrative capacity is essential for the successful implementation of AAM, since it may involve particular expertise and experience, as well as data collecting, which must be included in the design of AAM (Guardiancich et al 2019).…”

Ageing and the Pay-as-you-go (PAYG) Pension System’s Asset-liability (Mis)Matching

“…As an external solution: through immigration. These days, the demand for the introduction of NDCtype pension systems is becoming increasingly strong (although the process has come to a halt somewhat these days, as analyzed by Guardiancich et al (2019)). This may be interpreted as meaning that the Samuelsonian logic is being taken increasingly at face value, and pensions are increasingly being tied to actual contribution payments, and the various generous allowances that various strata of society have gained for themselves are being withdrawn, for example, it may also be defined as a kind of "back to basics" movement (although it's supporters have not really noticed this).…”