Abstract
As policymakers scramble to combat pension deficits, defined contribution pensions emerge as a promising solution. But what drives their success? Our study reveals that total contributions and investment returns are the twin engines of this scheme. However, a mismatch between projected and actual returns can have disastrous consequences. Three crucial parameters were identified - rates of return, annuity rates, and life expectancy - that determine the future value of pension contributions. Our findings show that higher interest rates and longer contribution periods significantly boost money worth ratios, while early retirement can lead to a substantial decrease in pension income. Conversely, normal retirement can provide retirees with up to 100% of their final salary. This research highlights the critical role of funding gaps, interest rates, and life expectancy in ensuring retirement income adequacy, making it a must-read for policymakers and stakeholders.
Keywords:
money worth ratio
defined contribution
income adequacy
pension deficits
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