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Pension Prefunding, Ageing, and Demographic Uncertainty

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Author Info
Jukka Lassila ()
Tarmo Valkonen ()
Abstract

Pension prefunding can be used to smooth contribution rates in economies where ageing will increase pension expenditure. But how extensive should prefunding be in a defined benefit pension system when there is considerable uncertainty concerning future mortality, fertility, and migration? We study the prefunding rules in the Finnish earnings-related pension system with an OLG simulation model. The results show that increasing the degree of prefunding could yield a more even intergenerational outcome and make future generations' position better, but it is quite possible to overshoot and harm current generations too much. Making the degree of prefunding fertility-dependent appears to be a useful alternative. With declining fertility, current large cohorts would pay modestly increased contributions. The accumulated funds, however, will be huge in relation to the wage bills of smaller future cohorts. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1011276620950
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 8 (2001)
Issue (Month): 4 (August)
Pages: 573-593
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Handle: RePEc:kap:itaxpf:v:8:y:2001:i:4:p:573-593

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Related research
Keywords: pensions; partial prefunding; ageing; demographic uncertainty;

References listed on IDEAS
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.:

  1. Jukka Lassila, 2000. "Wage formation by majority voting and the incentive effects of pensions and taxation," Finnish Economic Papers, Finnish Economic Association, vol. 13(2), pages 89-115, Autumn. [Downloadable!]
  2. Hans-Werner Sinn, 1998. "The Pay-as-you-go Pension System as a Fertility Insurance and Enforcement Device," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Bohn, Henning, 1999. "Will social security and Medicare remain viable as the U.S. population is aging?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 1-53, June. [Downloadable!] (restricted)
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  1. Lucas Bretschger & Karen Pittel, 2005. "Innovative Investments, Natural Resources and Intergenerational Fairness: Are Pension Funds Good for Sustainable Development?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(III), pages 355-376, September. [Downloadable!]
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