IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20180059.html
   My bibliography  Save this paper

Demography and Provisions for Retirement: The Pension Composition, an Equilibrium Approach

Author

Listed:
  • Bernard (B.M.S.) van Praag

    () (University of Amsterdam)

  • J. Peter Hop

Abstract

Pensions may be provided for in a modern society by several methods, viz., voluntary individual savings, mandatory fully funded occupational pension systems, and mandatory social security financed by pay-as-you-go. The specific mixture of the three systems we will call the pension composition. We assume that individual workers decide about their own individual savings, that the fully funded occupational system is decided upon by the age cohort of the median worker and that social security is decided upon by the median voter. For a given demography and interest rate the joint result of those decisions is a Pareto- equilibrium. Nowadays most of capital supply stems from individual and institutionalised pension savings. For ease of exposition we will assume that individual and collective pension savings are the only source of capital supply. When capital supply equals demand from industry there is equilibrium on the capital market with a corresponding equilibrium interest rate. In this paper we assume a demography with hundred age brackets and we investigate how changes in the birth and survival rates affect the pension composition and the capital market equilibrium. Our conclusion is that the demographic effects are considerable not only for the resulting pension composition, but also for macro-economic variables as the wage rate, the interest rate and the capital-income ratio. It follows that the pension composition in general and social security in particular is determined by the demography and cannot be used as long-term political instrument. We find that this is relevant for the present century, where birth and mortality rates in most western countries are steeply declining.

Suggested Citation

  • Bernard (B.M.S.) van Praag & J. Peter Hop, 2018. "Demography and Provisions for Retirement: The Pension Composition, an Equilibrium Approach," Tinbergen Institute Discussion Papers 18-059/V, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20180059
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/18059.pdf
    Download Restriction: no

    More about this item

    Keywords

    demography; funded pensions; unfunded pensions; social security; interest rate; overlapping generations; individual savings;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20180059. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tinbergen Office +31 (0)10-4088900). General contact details of provider: http://edirc.repec.org/data/tinbenl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.