A Comment on the Place of Funded Pensions in Transition Economies
Arguments are presented in the case of Eastern European transition countries for combining the restructuring of insolvent pay-as-you-go retirement systems with the introduction of mandatory, private, funded pensions. They involve the reduction of dead-weight loss, the return to formal activity of gray markets, and the development of capital markets. With the proper financing, such policies can also increase national savings. Lack of public knowledge about financial instruments for saving argues for making participation in the private funds mandatory. A combination of a reformed pay-as-you-go system with private, mandatory funds balances concern for political risk and real wage variability with concern for the variability of real financial returns. An important caveat is in order. Implementing such a policy requires a capacity for effective enforcement of prudencial regulations and a commitment to macroeconomic stability. If these are not present, reform should be limited to restoring balance to the pay-as-you-go system.
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NBER Working Papers
5413, National Bureau of Economic Research, Inc.
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- Peter A. Diamond (ed.), 1999. "Issues in Privatizing Social Security: Report of an Expert Panel of the National Academy of Social Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041774, June.
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