The Financial Stability of Notional Account Pensions

Salvador Valdés

Scandinavian Journal of Economics, 2000, vol. 102, issue 3, 395-417

Abstract: A number of European countries are reforming their pension benefit formulas by adopting ‘notional’ accounts. These accounts are used to determine individual benefits, but pay‐as‐you‐go financing is retained. This paper addresses the belief that by choosing adjustment rules cleverly, notional accounts can provide automatic financial equilibrium in the short run. If this were true, it would be a valuable advantage in terms of insulating the government budget from demographic pressures, while insulating the pension budget from fiscal pressures. It is shown that notional account benefit formulas cannot provide automatic financial equilibrium in the short run. The paper also suggests that if indexing rules are chosen in a particular way, and shocks revert rapidly to a mean, the pension institution may achieve financial stability in the long run. However, long‐run stability is unlikely to be valuable because political interference occurs in the short run.

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
https://doi.org/10.1111/1467-9442.03205

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:102:y:2000:i:3:p:395-417

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().