SeLFIES for Portugal - An Innovative Pan European Retirement Solution

Forthcoming in "Pension Plans in the EU Internal Market," edited by Prof. Nazare Cabral; Published by Springer, 2019

26 Pages Posted: 6 Nov 2019

See all articles by Robert C. Merton

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

Arun Muralidhar

AlphaEngine Global Investment Solutions; George Washington University

Rui Seybert P Ferreira

affiliation not provided to SSRN

Date Written: March 10, 2019

Abstract

With a rapidly aging population, Portugal faces some serious pension challenges including a Social Security system which is under pressure, and pension benefits gradually approaching levels that will require individuals to supplement Social Security with private savings. In addition, Portugal has a low rate of financial literacy and hence transferring the responsibility of retirement planning to the general population runs a major risk of many individuals retiring poor. While some attempts have been made to create private pension plans, they have not had the level of acceptance as has been the case in some of the Anglo-Saxon countries. This paper argues that the government of Portugal could issue a new form of Sovereign Contingent Debt Instrument (SCDI) that can address the growing retirement challenge and achieve other goals as well. SeLFIES (Standard-of-Living indexed, Forward-starting Income-only Securities) are a new type of bond that greatly simplify retirement planning to the level of basic financial literacy and can not only address retirement security, but also improve the government’s debt financing and funding for infrastructure. Finally, since Portugal is part of the EU, the demand for these new bond instruments could be Euro-wide thereby providing both a Pan European solution and additional benefits to the Portuguese government in reducing its overall financing cost.

Keywords: SeLFIES, Portugal, Retirement Security, Complementary DC System, Financial Innovation, Market Completion, Financial Literacy

JEL Classification: G11, G12, G15, G18, H54, H55

Suggested Citation

Merton, Robert C. and Muralidhar, Arun and Ferreira, Rui Seybert P, SeLFIES for Portugal - An Innovative Pan European Retirement Solution (March 10, 2019). Forthcoming in "Pension Plans in the EU Internal Market," edited by Prof. Nazare Cabral; Published by Springer, 2019. Available at SSRN: https://ssrn.com/abstract=3350107 or http://dx.doi.org/10.2139/ssrn.3350107

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
E62-634
Cambridge, MA 02139-4307
United States
617 715 4866 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6678 (Phone)

Arun Muralidhar (Contact Author)

AlphaEngine Global Investment Solutions ( email )

Great Falls, VA
United States

HOME PAGE: http://www.mcubeit.com

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

Rui Seybert P Ferreira

affiliation not provided to SSRN

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