Getting Feedback on Defined Contribution Pension Plans


  • Both authors would like to thank David Wilkie for his ideas on how to model feedback and his comments on the article. This research was completed during the PhD of Bonnie-Jeanne MacDonald at Heriot-Watt University and while she occupied a postdoctoral position at the University of Waterloo. She wishes to acknowledge the financial support of Heriot-Watt University, the British Council, the Spencer Education Foundation, the American Society for Quality, the North American Society of Actuaries, and the Natural Sciences and Engineering Research Council of Canada.


With the growth of private and public defined contribution (DC) pension plans around the world, market rates of return should increasingly play a large role in the retirement patterns of individuals. The reverse could, however, also be true—i.e., a country's population demographics could influence the financial markets. In this article, we model the potential impact of aggregate retirement patterns on macroeconomic variables with the goal of further understanding the implications of a traditional DC pension becoming the predominant source of retirement income for an entire society. We find that the economic-system feedback dampens fluctuations in the size of the working population.