The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest
The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.
|Date of creation:||Jan 2005|
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|Note:||1 September 2003; 13 November 2004; 15 January 2005, This article will appear in the forthcoming World Bank publication: Pension Reform trough NDC:s Issues and Prospects for Non-Financial Defined Contribution Schemes, Robert Holzmann and Edward Palmer (eds.)|
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