We report analysis of voluntary switching from defined benefit (DB) to defined contribution (DC) plans in an environment best characterised as benign. Using a large Australian fund database we identify socio-demographic correlates and the macroeconomic circumstances associated with DB to DC switching. The age of participants is an important correlate of switching behaviour, suggesting a degree of risk tolerance previously not recognised in the literature. It is also noted, however, that this type of switching behaviour may involve secondary behaviour such that uncertainties of DC investment performance are managed by reference to an asset allocation formula that maps to the previous DB investment strategy.

In a defined contribution pension system, one of the main risks faced by members refers to the investment of funds. In this context, we discuss which is the most suitable risk measurement for the affiliates to the pension system. Different life-cycle investment strategies are evaluated under this measure for different types of workers. We point out the importance of designing well-suited default investment options in light of the economic behavior of members, characterized by low financial knowledge, inertia and myopia in decision-making. We calibrate a pension risk model for the Chilean economy, including measures of life-cycle income, human capital risk, investment and annuitization risks. Our results suggest that affiliates can gain (loss) around 0.85 percentage points in terms of average replacement rates in return for an increase (decrease) of 1 percentage point in risk, measured as standard deviation of replacement rates. Using a stochastic dominance analysis, we find that there are no dominated strategies when subsidies from the Solidarity Pillar are excluded. When the Solidarity Pillar is considered, the most appropriate investment strategies for affiliates that receive these subsidies are concentrated on the riskier funds. However, this also means that there could be increased pressure on Government spending in order to grant additional benefits to affiliates. Our model has a wide range of practical applications that go from informing affiliates about the degree of uncertainty associated to their expected replacement rate to a guide to evaluate how different investment strategies affect the expected values of affiliates' pensions and their associated risk.

Over five million state and local government employees have lifetime earnings that are divided between employment that is covered by the Social Security system and employment that is not covered. As Social Security benefits are a nonlinear function of covered lifetime earnings, the simple application of the standard benefit formula to covered earnings only would provide a higher replacement rate on those earnings than is appropriate given the individuals' total (covered plus uncovered) lifetime earnings. The Windfall Elimination Provision (WEP), established in 1983, is intended to correct this situation by applying a modified benefit formula to earnings of individuals with non-covered employment. This paper analyzes the distributional implications of the WEP and finds that it reduces benefits disproportionately for individuals with lower lifetime covered earnings. It discusses an alternative method of calculating the WEP that comes closer to preserving the intended redistribution of the system. In recognition of historical data limitations that prevent the Social Security Administration (SSA) from being able to implement this alternative method at present, the paper also analyzes two alternative ways of calculating the WEP that use the same information as the current WEP, are budget neutral, and come closer to maintaining the individual-level, cross-sectional progressivity of Social Security than does the existing WEP formula.

The rare annuitization, thin immediate annuity market, and date limitation have prevented the attempts to analyze the longevity insurance market in Korea. The purpose of this paper is to examine the relative value of Korean annuity rates to theoretical ones and to provide a new evidence on the function of the voluntary annuity market in terms of the money's worth ratio (MWR). Our results show that the immediate annuity market in Korea is reasonably efficient. For example, the money's worth ratio of an immediate annuity of a 10-year guarantee period for a 65-year-old male is estimated to be about 0.8 with the general population mortality rate, while it improves to 0.9 with the annuitant mortality table. Average MWR is similar to that of other countries with thin annuity market, which show that annuitants in Korea pay a comparable cost to that in other countries.