Collective versus Individual Pension Schemes : A Welfare-Theoretical Perspective

Collective pension contracts allow for intergenerational risk sharing with the unborn. They therefore imply a higher level of social welfare than individual accounts. Collective pension contracts also imply a sub-optimal allocation of consumption across time periods and states of nature however. Hence, collective pension contracts also reduce social welfare. This paper explores the welfare effects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes