Increasing Life Expectancy and Pay-As-You-Go Pension Systems
AbstractIn 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. JEL classification: H55, J1, J18, J26
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Bibliographic InfoPaper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 179.
Date of creation: 28 Aug 2012
Date of revision:
Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- J1 - Labor and Demographic Economics - - Demographic Economics
- J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-09-22 (Economics of Ageing)
- NEP-ALL-2012-09-22 (All new papers)
- NEP-DEM-2012-09-22 (Demographic Economics)
- NEP-LAB-2012-09-22 (Labour Economics)
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