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How Does Covid-19 Shock Financially Impact the US PAYG Pension Scheme? An Automatic Balance Mechanism Approach

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Frédéric Gannon

    (Université Le Havre Normandie, France & Sciences Po-OFCE)

  • Florence Legros

    (ICN-Business School)

  • Vincent Touzé

    (Sciences Po-OFCE)

Abstract

The COVID-19 pandemic crisis financially impacts the PAYG pension schemes. In the short run, the economic shock induced a decrease in receipts due to the contraction of the GDP. In the medium and long run, the return to the pre-crisis level depends on the ability of the economy to rebound. As to expenses, in the very short term, they do not decrease due to the inertia. However, the fall in contributions is progressively taken into account to calculate the new pensions, which will gradually contract expenditures. The demographic impact is mirrored in a moderate increase in mortality, mainly that of retirees. We develop a macroeconomic model that simulates these changes and is then used to revise the pre-crisis forecasts in pension expenditures and payroll tax receipts. Relying on the US Social Security 75-year forecast, we analyze the impact of the crisis on the financial balance of its pension system. We assess the extent of the additional fiscal adjustments required to restore financial equilibrium through an Automatic Balancing Mechanism (ABM).

Suggested Citation

  • Frédéric Gannon & Florence Legros & Vincent Touzé, 2024. "How Does Covid-19 Shock Financially Impact the US PAYG Pension Scheme? An Automatic Balance Mechanism Approach," Springer Books, in: Marco Corazza & Frédéric Gannon & Florence Legros & Claudio Pizzi & Vincent Touzé (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 186-191, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-64273-9_31
    DOI: 10.1007/978-3-031-64273-9_31
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