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Increasing Life Expectancy and Pay-As-You-Go Pension Systems

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Abstract

In this paper I study how PAYG pension systems of the notional defined contribution type can be designed such that they remain financially stable in the presence of increasing life expectancy. For this to happen two crucial parameters must be set in an appropriate way. First, the remaining life expectancy has to be based on a crosssection measure and, second, the notional interest rate has to include a correction for labor force increases that are only due to rises in the retirement age which are necessary to "neutralize" the increase in life expectancy. It is shown that the selfstabilization is effective for various patterns of retirement behavior and also – under certain assumptions – if life expectancy reaches an upper limit.

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 179.

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Length: 46
Date of creation: 28 Aug 2012
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Handle: RePEc:onb:oenbwp:179

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Keywords: Pension System; Demographic Change; Financial Stability;

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Cited by:
  1. Andras Simonovits, 2013. "Regressive intracohort redistribution in nonfinancial defined contribution pension," IEHAS Discussion Papers 1312, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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