INTRODUCTION

The designers of an individual accounts pension reform must make a huge number of technical decisions. But two basic issues of political economy and philosophy underlie all of them. The first is whether to place restrictions of any kind on withdrawals from the accounts. The second, assuming that restrictions are imposed and take the form of a requirement to purchase an annuity or some other financial product that provides for phased withdrawals, is who should supply the product: the public sector, or the private sector.

The regulation of distributions from individual accounts raises basic issues of political philosophy: the proper domain of state action, the bounds of individual choice, and the appropriateness of paternalistic government. Similar issues arise with the regulation of distributions from employer-provided pension plans and tax-favored individual retirement savings and personal pension plans. As the introduction noted, the defined contribution plan is superceding the defined benefit plan in a number of the larger industrial countries. Typically, withdrawals from these plans are lump sum. The growing importance of defined contributions plans is creating an important public policy issue: whether to impose restrictions on distributions to prevent an excessive rate of dissaving, or modify the tax system to the same end.

The question of whether annuities, if mandatory, should be publicly or privately provided raises similar philosophical issues.