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Dilemmas about Pensions

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  • Sinclair, Peter

    (Bank of England and University of Birmingham (UK))

Abstract

This paper looks at the general principles underlying pensions systems, and the relative merits of different kinds of system of state superannuation payments. A pay as you go system is, it is argued, usually inferior to a fully funded one. The paper presses the case for the view that redistribution is a cogent argument--perhaps the most cogent argument--for state provision, in a practical context where earnings opportunities differ between individuals. Perfect capital markets are assumed, and labour supplies are endogenous. There is some merit in a uniform state pension supported by a proportional tax on wage earnings, and its implications under two different social welfare functions are considered. But outcomes are Pareto-dominated, under each social welfare function, by a self-selection system from a continuous menu of contribution and pension rates. The least able opt for a large pension and a high tax rate, the abler for less of both. So far from state pensions being proportional to earnings, they should in fact be negatively associated with them.

Suggested Citation

  • Sinclair, Peter, 2002. "Dilemmas about Pensions," Economic Analysis and Policy, Elsevier, vol. 32(1), pages 91-105, March.
    • Handle: RePEc:eee:ecanpo:v:32:y:2002:i:1:p:91-105
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    More about this item

    Keywords

    Pay as You Go; Pension;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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