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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.

Suggested Citation

  • Markus Knell, 2012. "Increasing Life Expectancy and Pay-As-You-Go Pension Systems," Working Papers 179, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:179
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    Cited by:

    1. Andras Simonovits, 2013. "Regressive intracohort redistribution in nonfinancial defined contribution pension," CERS-IE WORKING PAPERS 1312, Institute of Economics, Centre for Economic and Regional Studies.
    2. Christine Mayrhuber & Silvia Rocha-Akis, 2013. "Anreizsysteme zur Weiterbeschäftigung älterer Arbeitnehmerinnen und Arbeitnehmer," WIFO Studies, WIFO, number 46905, April.
    3. Ulrike Famira-Mühlberger & Ulrike Huemer & Christine Mayrhuber, 2015. "Die Beschäftigungsquote Älterer im europäischen Vergleich," WIFO Studies, WIFO, number 58532, April.
    4. Markus Knell, 2013. "The Austrian System of Individual Pension Accounts – An Unfinished Symphony," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 47-62.
    5. Christl, Michael & Kucsera, Dénes, 2015. "Reformoptionen des österreichischen Pensionssystem und ihre finanziellen Auswirkungen," EconStor Preprints 113283, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Pension System; Demographic Change; Financial Stability;
    All these keywords.

    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

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