Insights Blog

Adverse Effects of Financialized Pensions

December 7, 2017

Retirement systems in rich nations have shifted away from pay-as-you-go social insurance programs (such as Social Security) and towards financially-based, advance–funded retirement accounts (such as 401(k)-type accounts).

These financialized retirement systems shift market risk away from employers and governments to individuals. But individuals are less able to manage the risks of accumulation, investment, and longevity.

ReLab's policy note, “The Need for More Social Security and Secure Pensions,” finds that, within the OECD, the reliance on financialization rather than social insurance:

  • erodes retirement income security
  • cuts retirement time, especially for lower-income groups
  • requires more people to work in old age
  • raises the risk of old-age poverty