In many countries, many elderly people depend on the government and employment−based pensions. The modal pension in the developed countries was of the defined benefit several years ago. A governed−based defined benefit system transfers income from workers to the retired generation, at least in part. But the world’s population is rapidly growing aging, so the risks of underfunded plan terminations is increasing and defined contribution plans are becoming more the norm in the developed countries. We build an option model for pricing individual defined contribution pension and examined whether individual defined contribution pensions can reduce inefficiency in defined benefit pensions in this paper
