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Restructuring Retirement Risks$
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David Blitzstein, Olivia S. Mitchell, and Stephen P. Utkus

Print publication date: 2006

Print ISBN-13: 9780199204656

Published to Oxford Scholarship Online: September 2006

DOI: 10.1093/0199204659.001.0001

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Chapter Chapter Market Innovations to Better Allocate Generational Risk

Chapter Chapter Market Innovations to Better Allocate Generational Risk

(p.226) Chapter 12 Market Innovations to Better Allocate Generational Risk
Restructuring Retirement Risks

Salvador Valdés‐Prieto

Oxford University Press

Mandatory old-age benefit programs tend to require periodic adjustments as a result of demographic and economic shocks. However, such discretionary adjustments create political risk for workers and beneficiaries, and raises taxpayer risk. An alternative way to handle such shocks is to use rule-based adjustment, which can be adopted in an unfunded system without incurring transition costs and without increasing public debt. This chapter explores an approach to this problem that would endow the Social Security Trust Fund with property rights over the revenue of a (much reduced) residual payroll tax paid by future workers. This revenue would be securitized and the resulting securities priced in financial markets. The new securities created in the process would allow beneficiaries to obtain safe real pensions protected from investment risk.

Keywords:   Social Security Trust Fund, securitization, taxes, revenue stream, benefit stream

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