Abstract
Current multi-pillar pension plans have adopted the same retirement age for the defined benefit (DB) and defined contribution (DC) components of the plan. This paper considers potential benefits obtainable from coordinating DB and DC benefits. The plan proposed here involves establishing an earlier standard retirement age for the DC component of the multi-pillar pension plan than for the DB component of the multi-pillar pension. Individuals who receive low returns on the DC pension plan are eligible for earlier non-standard disbursements from their DB pension plan. The lower standard retirement age on the DC component of the multi-pillar pension plan than on the DB component of the multi-pillar pension plan reduces costs of funding the DB plan while maintaining a lower overall potential retirement age for individuals. The possibility of non-standard early DB disbursements for retirees who realize low investment income reduces the instability of retiree income due to market fluctuations. A lower standard retirement age on the DC component of the multi-pillar pension plan than on the DB component of the multi-pillar pension plan provides an incentive for workers to delay retirement until reaching the standard DB retirement age. This work incentive does not increase costs for the DB plan.
Published Version
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