economies with formal labor markets the density of contributions tends to be close to 100% for each year of employment and then lower due to periods out of the labor market. But in countries with greater informality, and with workers in seasonal employment everywhere, they may find it very difficult to contribute 12 months a year. Hence modeling the likely payout from a 5% contribution as a share of wages should build in scenarios for likely payouts for those with less than 100% contribution record. The current debates about the performance of the Chilean system are partly driven by the realization that many workers have far less than ‘official’ projections – because many simple projections assume a worker will contribute the whole time. Even if there are many other variants presented, the full implications may be lost on workers – whether the implications of a failure to contribute should be obvious or not. Working out the ‘right’ level of contributions can be greatly assisted by models to project pension payouts from private pensions (OECD 2012, IOPS 2014, Dowd and Blake, 2013, Sane and Price, 2018). They provide useful tools for how much to contribute and the implications of different investment strategies. As highlighted above, a useful development if these models are used in the context of an NDC system, is to model the joint distribution of outcomes from the investment strategy in the private pensions and the NDC formula.

The final issue in this brief overview of the nature of the pension product relates to the payout phase.<sup>11</sup> Without specifying the payout phase, it is not possible to state clearly the outcomes that the pension system is seeking to achieve. Many private pension systems are better described as saving accumulation systems rather than retirement income systems. This is because they allow members to withdraw money from the pension pot for other purposes such as health, education and housing, and then withdraw the full amount of money at retirement in a lump sum. A multi‐purpose accumulation vehicle can be well‐ designed – as in the Malaysia and Singaporean examples with some assets permanently identified for retirement and some proportion allocated for access to health, housing or education if needed. But early access is often not well‐designed and can lead to significant leakage. The Society of Actuaries in the US for example has estimated that some 40% of US retirement assets leak before retirement – principally because workers can take the full accumulated pot when they change employer.

However, the potentially attractive benefit design in Malaysia during the accumulation phase has traditionally been followed by a tendency to take 100% of the money as a lump sum at ‘retirement’. While practice is changing, one survey showed that 70% of people had used all their retirement assets within 10 years of retirement (EPF, 2004). Clearly this is not ideal. There is no guarantee that this will happen given the experience of Australia which allows 100% lump sums to be taken and where most workers do not spend all the money within 10 years of retirement (ASIC, 2017). But for all the reasons that mechanisms like mandatory or auto‐enrollment pensions and investment defaults work – it is prudent to mandate that a percentage of pension assets go into an income generating product.

> 11 This section does not go into great detail on all the different annuity options which can be found in a range of publications – for example Rocha and others (2011), or Brown, J. R., O. Mitchell, J. Poterba, and M. Warshawsky. 2001. “The Role of Annuity Markets in Financing Retirement”. MIT Press, Cambridge.

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