On the financial sustainability of earnings-related pension schemes with ‘pay-as-you-go’ financing and the role of government-indexed bonds
AbstractIn this paper the authors reconsider the idea of an earnings-related pension system with reserves invested in indexed government bonds as a mechanism to both ensure financial sustainability and improve security. They start by reviewing the characterization of the sustainable rate of return of an earnings-related pension system with pay-as-you-go financing. The authors show that current proxies for the sustainable rate, including the Swedish"gyroscope,"are not stable and propose an alternative measure that depends on the growth of the buffer-stock and the pay-as-you-go asset. Using a simple one-sector macroeconomic model that embeds a notional account pension system they then show how GDP indexed government bonds, if combined with the right measure for the sustainable rate of return on contributions, could be used to generate a sustainable and secure earnings-related pension system, without becoming a fiscal burden. The proposal is particularly attractive for countries considering reforms to earnings-related systems that have accumulated a large implicit pension debt. In this case, the government bonds allow the financing of this debt in a transparent way. The proposed mechanism can also facilitate the transition to a fully-funded pension system when the government bonds are allowed to be traded.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.
Volume (Year): 8 (2009)
Issue (Month): 02 (April)
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Other versions of this item:
- Robalino, David A. & Bodor, Andras, 2006. "On the financial sustainability of earnings-related pension schemes with"pay-as-you-go"financing and the role of government indexed bonds," Policy Research Working Paper Series 3966, The World Bank.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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12016, University Library of Munich, Germany.
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"Portability of pension, health, and other social benefits : facts, concepts, issues,"
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- Eduardo Fajnzylber, 2010. "Assessing Fiscal Costs and the Distribution of Pensions in Transitions to FDC and NDC Systems: A Retrospective Analysis for Chile," Working Papers wp_005, Adolfo Ibáñez University, School of Government.
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