Optimal Notional Defined Contributions

Notional Defined Contributions (NDC) systems mimic the incentive structure of fully funded social security while preserving Pay-as-you-go nature of most current systems. We study size-preserving reforms which replace the US system with alternative NDCs many contribution rules and deficit/GDP ratios. If one retains mandatory ageindependent contribution rules we find change to an NDC reduce welfare: the sacrifices in distributive insurance properties are not compensated by the efficiency gains. are, however, flexible enough allow for alternative contribution increase welfare actuarial fairness. Contributions ought be age-dependent concentrated later on a worker’s career. The structure induces capital accumulation that results, through general equilibrium effects, gains larger for low productivity workers, despite income inequality as captured by Gini coefficient.