Underpinning returns

摘要

Around the developed world, govern-ments are striving to cut back pension benefits financed from taxes on working people. Individuals are being encouraged to do more for themselves by investing in their own retirement accounts. The trouble is that this exposes part or all of their retirement income to so-called investment risk―a risk highlighted by recent falls in share prices. In principle, guarantees can mitigate the riskiness of individual retirement saving. But what form should they take? How expensive are they to provide? And how should they be fitted into redesigned pension systems? Several kinds of guarantee have already been introduced. In Germany, new individual retirement accounts are given tax breaks and grants. The financial institutions providing the new accounts must offer a guarantee of principal: that is, savers must get back at least the cash value of their contributions. Another type of guarantee is a minimum pension, common in countries such as Chile that have converted their pension system from one financed through taxes to one mainly made up of privately funded accounts. If an individual account delivers a pension income less than a quarter of average earnings, the Chilean government will use tax revenues to top it up to that floor.