Occupational Pension Scheme Design

David McCarthy

in The Oxford Handbook of Pensions and Retirement Income

Published in print July 2006 | ISBN: 9780199272464
Published online September 2009 | | DOI:

Series: Oxford Handbooks in Business and Management C

 Occupational Pension Scheme Design

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This article summarizes current economic analyses of occupational pension scheme design. The first section discusses the case of complete markets, and ‘spot’ labour markets, in which both employees and employers are indifferent between different occupational pension scheme designs. The implication of this result is that if any optimal scheme design exists then it must be the result of market incompleteness. The second section discusses the ways in which different types of market incompleteness faced by employees affect their relative preferences for pensions and cash wages. These include: uninsurable risks, such as wage risk and annuity price risk; portfolio restrictions; and the inability to borrow significantly against future income to support current consumption. In addition, workers receive significant tax benefits in the United States and the United Kingdom if they take part of their compensation in pensions. A third section discusses the empirical economic evidence about the role of pensions in labour markets that deviate from ‘spot’ labour markets.

Keywords: occupational pension scheme; pension design; labour markets; complete market; tax benefits; pension compensation

Article.  7868 words. 

Subjects: Business and Management ; Business Ethics

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