Book reviews for The Journal of Pension Economics and Finance reflect reviewers' own views and in no way represent the views of the institution(s) with which they are affiliated.
Over the past two decades, the structure of pensions shifted from traditional defined benefit pensions to individual retirement accounts. With projections of increased aged populations in the future, many countries have reduced their traditional defined benefit ‘pay as you go’ public pensions and supplemented or replaced them with individual retirement accounts. This edited volume describes the individual retirement plans in nine western European countries. This book is useful because the details of these plans vary greatly across societies and their impact is unclear in ‘meeting the needs of older people’. The book contains separate chapters on the country plans and issues with individual investment plans. The issues considered range from inequality, account decumulation, plan regulation, and the semantics surrounding pensions.
Several authors identify issues connected with individual retirement plans that merit noting. Bryn Davies notes that the plans in the United Kingdom are discussed as ‘savings’, with a positive connotation, rather than as ‘promises’ based on taxes, with a negative connotation. The analysis of the Swedish system of notional accounts by Stahlberg identifies a major problem as the lack of knowledge of participants despite the widespread information campaign by the Swedish pension agency. I suspect that this likely prevails in systems without widespread information campaigns and it remains to be seen what can be done to overcome lack of knowledge.
An issue raised in the book is inequality based on unequal lifetime earnings and selectivity in levels of participation and contributions when choices are made. Examples of accounts benefiting the economically well-off occur throughout the discussions of individual country plans and are highlighted by DeWitte, Roels, and Stevens in their article ‘Why Current Pension Policy Helps the Rich get Richer’. The analysis by apRoberts and Concialdi raises the question of what is ‘saving for retirement’: purely financial assets for purchasing a retirement annuity or any form of savings that can provide retirement income? They suggest that in France paying for pensions is safer than saving for retirement and perhaps home ownership with implied rents is the safest form of retirement savings. A major issue for individual investment accounts is how to provide income during retirement. Turner provides a nice discussion identifying risks connected with retirement income generated from individual accounts including longevity risk of outliving resources, survivor risks (primarily to women), inflation risks, investment guarantees, provider fees, and provider insolvency. Turner compares the structure of plans and annuities in Sweden, the United Kingdom, and Chile, and how the different forms their annuities take cover risks.
The editors state that the book describes ‘the objectives of the pension reform in these countries, the results of reforms, and how employees and other individuals have responded to opportunities’ to make personal investment plans. I believe that the book accomplishes the first objective very well, with clear descriptions reviewing the scope and features of the individual retirement plans in different countries. The book also largely accomplishes the goal of documenting the extent of participation levels and account values in the plans with statistics. The chapter summaries are uneven to the extent that they review how people respond, perhaps reflecting limited data on effects of recently developed plans. A possible extension for this subject would be analysis of country specific survey data to assess participation and contribution levels in individual accounts across different segments of the population. This book provides valuable information on investment retirement accounts established in Western European countries.
