Summary |
Nonfinancial defined contribution (NDC) schemes are now in their teens. The new pension concept was born in the early 1990s: implemented from the mid-1990s in Italy, Latvia, Poland and Sweden: legislated most recently in Norway and the Arab Republic of Egypt; and serves as inspiration for other countries. This innovative, unfunded individual account scheme provides a promising option at a time when the world seems locked into a stalemate between piecemeal reform of ailing traditional defined benefit plans or their replacement with prefunded financial account schemes. The current financial crisis, with its focus on sovereign debt, has enhanced the attraction of NDC as a pension scheme that aims for intra- and intergenerational fairness, offers a transparent framework to distribute economic and demographic risks, and, if well designed, promises long-term financial stability. Supplemented with a basic minimum pension guarantee, explicit noncontributory rights, and a funded pillar, the NDC approach provides an efficient framework for addressing poverty and risk diversification concerns.
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