Can internal swap markets enhance welfare in defined contribution plans?

J. Cui, E.H.M. Ponds

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

There is a worldwide trend to substitute defined contribution pension plans for defined benefit plans, which are typically indexed to wage or price inflation. A problem with this development is that participants in defined contribution plans have limited access or no access at all to inflation-linked assets, especially wage inflation-linked claims. This article demonstrates that the creation of an internal market that swaps equity-related returns for wage inflation-linked income streams helps to overcome the market incompleteness regarding wage-linked securities. The result is an improvement in the welfare of both younger and older defined contribution plan members.
Original languageEnglish
Pages (from-to)52-58
JournalRotman International Journal of Pension Management
Volume33
Issue number2
Publication statusPublished - 2010

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Wages
Inflation
Defined contribution plan
Swaps
Equity
Substitute
Income
Assets
Internal market
Defined contribution pension plan
Defined benefit
Market incompleteness

Cite this

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title = "Can internal swap markets enhance welfare in defined contribution plans?",
abstract = "There is a worldwide trend to substitute defined contribution pension plans for defined benefit plans, which are typically indexed to wage or price inflation. A problem with this development is that participants in defined contribution plans have limited access or no access at all to inflation-linked assets, especially wage inflation-linked claims. This article demonstrates that the creation of an internal market that swaps equity-related returns for wage inflation-linked income streams helps to overcome the market incompleteness regarding wage-linked securities. The result is an improvement in the welfare of both younger and older defined contribution plan members.",
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Can internal swap markets enhance welfare in defined contribution plans? / Cui, J.; Ponds, E.H.M.

In: Rotman International Journal of Pension Management, Vol. 33, No. 2, 2010, p. 52-58.

Research output: Contribution to journalArticleScientificpeer-review

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N2 - There is a worldwide trend to substitute defined contribution pension plans for defined benefit plans, which are typically indexed to wage or price inflation. A problem with this development is that participants in defined contribution plans have limited access or no access at all to inflation-linked assets, especially wage inflation-linked claims. This article demonstrates that the creation of an internal market that swaps equity-related returns for wage inflation-linked income streams helps to overcome the market incompleteness regarding wage-linked securities. The result is an improvement in the welfare of both younger and older defined contribution plan members.

AB - There is a worldwide trend to substitute defined contribution pension plans for defined benefit plans, which are typically indexed to wage or price inflation. A problem with this development is that participants in defined contribution plans have limited access or no access at all to inflation-linked assets, especially wage inflation-linked claims. This article demonstrates that the creation of an internal market that swaps equity-related returns for wage inflation-linked income streams helps to overcome the market incompleteness regarding wage-linked securities. The result is an improvement in the welfare of both younger and older defined contribution plan members.

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