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Adjusting the Earnings-related Pension System to Low Growth

Author

Listed:
  • Valkonen, Tarmo
  • Lassila, Jukka

Abstract

This study analyses the adjustment of the Finnish earnings-related pension system to very low economic growth. The results show that a permanently lower growth rate of the wage bill would raise only moderately the pension contribution rates in the long term. This is because also the benefits are partially linked to wages. But if the rate of return on the pension fund investments would also go down, the contribution rates would increase significantly. External competitiveness and employment would weaken as well as the position of future generations. The study presents a pension reform that stabilizes the contribution rate by raising the retirement age and cutting pensions. These kind of specific reforms are not, however, optimal due to demographic and economic uncertainty. A better solution would be automatic adjustment rules that are designed to provide accepted redistribution of income between various generations.

Suggested Citation

  • Valkonen, Tarmo & Lassila, Jukka, 2013. "Adjusting the Earnings-related Pension System to Low Growth," ETLA Reports 13, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:report:13
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    File URL: http://www.etla.fi/wp-content/uploads/ETLA-Raportit-Reports-13.pdf
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    More about this item

    Keywords

    Economic growth; Earnings-related pension system; Intergenerational redistribution;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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