The Pension Research Council
Book Title

The Pension Challenge: Risk Transfers and Retirement Income Security

Chapter 1: Overview: Developments in Risk Management For Retirement Security
Olivia S. Mitchell and Kent Smetters
0-19-926691-3-01

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Abstract

This volume evaluates advances in retirement risk management by exploring developments for enhancing old-age income security. Recent volatility in capital markets, along with longer-term trends in pension system design, has prompted questions about how well the evolving retirement system is performing. Over the years, employers and governments around the world have tried to protect against retirement insecurity by setting up defined benefit (DB) pension schemes. More recently, the traditional DB model has increasingly been supplanted with defined contribution (DC) plans in many countries. Converting from DB to DC plans allows workers to gain more control over their retirement saving decisions on the accumulation side, but they also take on new types of risk. This volume provides a brief analysis of why the traditional DB plan appears to be abandoned in favor of DC plans, and sets out a range of new perspectives on how to better manage the wide range of retirement risks as capital and labor markets continue to evolve. In particular, it discusses the risks associated with each plan and evaluates the idea of adding additional structure to both plans to help protect plan participants.