Defined contribution plan vs. defined benefits plan: reforming the legal retirement age

Juan Lacomba and Francisco Lagos

Journal of Economic Policy Reform, 2009, vol. 12, issue 1, 1-11

Abstract: In the context of the current debate surrounding the reform of most social security systems, this paper analyzes the political economy of the legal retirement age. Using a life‐cycle model, we study the effects of changing the redistributive parameters on the optimal legal retirement age in a Pay‐As‐You‐Go social security system. Two pension plans are studied, with opposite results. In a defined contribution plan, an increase in the redistribution levels will delay the preferred legal retirement age. On the other hand, in a defined benefits plan, the same increase in the redistribution levels will lower this preferred age.

Date: 2009
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DOI: 10.1080/17487870802677668

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