33.2 million (14% to 33%). Advantages of defined contribution plans for the employer include lower regulatory and administrative costs (including avoidance of PBGC insurance premia), as they need not meet the actuarial funding standards required of defined benefit funds; shift of risk to employees, as noted in Section 1, although this should be offset by higher compensation; and self investment being permitted for over 10% of assets.

But in fact Kruse (1991), using US micro data, suggests that rather than a positive shift by employers, with termnination of a defined benefit plan, the relative shift io defined contribution relates largely to slower employment growth for firms offering defined benefit plans (although there was some supplementing of defined benefit by defined contribution). Effects of relative costs on shifts towards defined contribution were also not large. Finally, greater economic instability in an industry leads firms introducing new pension plans to choose defined contribution, perhaps due to lower risk.

Social security is the US is again supportive of private schemes; the replacement rate is low (though finds can take full account of social security in paying pen-ions, so as to ensure a fixed replacement ratio for all levels of income). A recent reform will make social security pensions a smaller proportion of earnings, beginning in the year 2000, and will increase the age at which full benefits are payable. It also introduced a degree of prefunding for social security; funds are accumulated in a trust fund and invested in government bonds. This should in principle reduce any tendency for social security provisions to reduce national saving (while increasing the risk that it will be diverted by the government to unproductive uses). However, as pointed out by Bodie and Merton (1992), it is not clear that government's willingness to repay bonds (or at least, not to devalue them by a bout of inflation) should be any more relia*le- than the promise to pay pensions, unless the funds are used for productive capital investment, with revenues hypothecated to pay pensions.

# In Jaa (Murakani (1990), Clark (1991)), tax

qualified pension plans (TQPPs), authorized 1962, are similar to Anglo-American funded pension plans, and are available to firms with, or more employees. In 1989 they covered 28 of the private sector workforce and held assets of $76 billion. 90% of benefits are taken as a '--sum. Employee pension funds (EPFs) (19 unlike TQPPs, enable the private plan to replace the earnings related component of social securi (and hence the firm can contract out of earning related social security contributions), and are o available to large Ftrms with 500 or more employees. Benefits are in the form of an annuity equal to the social security pension plus the excess (which has to be at least a further 30%) - often taken as a lump sum. These cover 26% of the workforce and had assets of $143 billion in 1989. Both schemes' "defined benefits" usually relate to final "basic" salary, which may not keep pace with total remuneration, given the importance of bonuses and allowances. These plans coexist with traditional unfunded retirement bonuses, which benefit from a 40% tax deduction for accruing liabilities, payable when they are earmarked through an accounting entry in the books of the firm.

In contrast to the US and UK, social welfare promises in Japan were historically relativel generous, with a prospective "replacement ratio (average pension as a proportion of averag earnings) of over 50 per cent (Table 5), although a reform of 1985 will gradually reduce publi pensions as a proportion of average earnings. A in the US, some assets, amounting to 50% of GDP at present, are accumulated by the state in advance of benefit commitments; this can help allay demographic concerns. Such social security benefit commitments are likely to constrain the growth of pension funds. However, social security in Japan is not payable until 60, while retirement is often at 55, so a private pension can bridge this gap."' In addition, as noted companies can opt out of part of social security contributions by paying an equivalent pension.

The German private pension system comprises four main types of scheme (Deutsche Bundesbank (1984)). The largest are unfunded schemes, "direct commitments" (Direktzusagen) on the balance sheets of large firms, which are usually