Pension Economics

With the design of the pension system critically dependent on objectives and context, and many objectives and trade-offs to consider, real-world pension schemes are complex and rich in institutional detail. Ongoing demographic changes also challenge pension systems, including their performance and outcomes in terms of pension adequacy, poverty prevention, and financial viability. To breakdown all of this, Pension Economics provides an introduction to and overview of the economics of pensions, explaining the basic mechanisms and design issues with a particular focus on distribution, behavioural aspects, and market failures. It introduces different pension systems, ranging from defined benefit, pay-as-you-go schemes to defined contribution-funded schemes; discusses their pros and cons from both an individual and social perspective; and analyses how differences in earnings, behavioural aspects, and market failures may motivate intervention in retirement savings on both equity and efficiency grounds.

Torben M. Andersen introduces the political economy of pensions, emphasizing how the horizon of voters, intergenerational linkages, and income distribution may affect support for tax-financed pensions. A specific focus is also lent to the ways in which savings and retirement decisions are affected by possible hazards that may appear over the course of a life, including individual factors such as earnings, health, and length of life, and economy-wide factors, such as rates of return, structural changes, and changing demographics.

Pension Economics presents a coherent introduction to the economics of pensions, providing the reader with an understanding of the many purposes of a pension system and the design possibilities available.