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2 results

  • Chapter 13 - Approaches to Public Pension Reform

  • from Part IV - Confronting Threats
  • Peter H. Lindert, University of California, Davis
  • Book:
    Making Social Spending Work
    Published online:
    01 April 2021
    Print publication:
    08 April 2021, pp 286-320

  • Summary

    In reforming pension systems to assure sustainability and equity, conventional practice has called for a “three pillars” approach advocated in the 1990s. This chapter calls for significant revision in that approach. Three countries’ major pension surgeries in three countries – Chile, Singapore, and Sweden –are subjected to a post-operative appraisal. The main verdict is that a country can achieve sustainability plus insurance without the problematic second pillar built on payroll deductions in the formal workplace. The first and third pillars suffice, given political consensus. Chile’s famous pension reform has been emulated but misunderstood, for reasons detailed here. Singapore’s mandatory payroll-taxing system had succeeded in accelerating economic growth, but at the expense of reasonable returns to pensioners. Sweden’s notional defined contribution plan despite its name, is a sensible first-pillar approach, indexing pensions to demographic and economic movements.

  • Pareto-improving transition to fully funded pensions under myopia

  • Torben M. Andersen, Joydeep Bhattacharya, Marias H. Gestsson
  • Journal:
    Journal of Demographic Economics / Volume 87 / Issue 2 / June 2021
    Published online by Cambridge University Press:
    02 March 2021, pp. 169-212
    • Article
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  • Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme helps the current generation of retirees but hurts future generations because they are forced to save via a return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the “paternalistically motivated forced savings” component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results inform the debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.