Assessing the pension reform potential of a notional defined contribution pillar

Abstract As some of the limitations of the traditional pay‐as‐you‐go defined benefit public pension model have become more evident in recent years, pension experts have begun searching for alternative models. The notional defined contribution model, also financed on a pay‐as‐you‐go basis, has emerged as one of the major new approaches. Drawing on evidence from schemes in six countries (Sweden, Italy, Poland, Latvia, Kyrgystan and Mongolia), this article aims to describe the notional defined contribution model and to review its strengths and limitations relative to the major alternatives, the pay‐as‐you‐go defined benefit model and the funded defined contribution model. A four‐pillar pension model is proposed.