Traditional pension systems continue facing major problems regarding their sustainability.
Significant demographic changes in modern societies and antiquated attributes of pension
systems result in increasing deficits in public budgets. Various proposals, trying to reform
traditional pension systems via conservative reforms, failed to fix the emerging problems.
This paper explores substantial opportunities to reform persisting pension systems
structurally. By considering different theoretical approaches of reforms and actual
implementations of structural pension reforms in practice, advantageous alternatives of
designing pension schemes shall be assessed. Furthermore, the authors aim at stimulating
discussions about structural pension reforms by introducing a profound reform proposal. Numerous debates and ideas, concerning the pensions system and its reforms, have arisen
during the last ten to 20 years all over the world. Moreover, in 1994, the World Bank
published a book “Averting the Old Age Crisis: Policies to Protect the Old and Promote
Growth”. The diagnosis of this book, summarized by Michael Bruno, was that “systems
providing financial security for the old are under increasing strain throughout the world”1.
“As long as the number of retirees does not grow faster than total earnings of employees [in
the current system], the tax receipts can continue to pay the benefits of retirees”2. But because
of important changes in the demographic situation and mis-constructions in present systems,
this condition does not hold true anymore: first, the birth rate in most countries of the
Organization for Economic Co-operation and Development (OECD) decreases continuously.
Thus the number of young employees decreases, too. Second, the people, born in the time of
the baby boom (after World War II, the so-called “baby boomers”), will retire during the next
decade. Additionally, due to the progress in medicine and high living standards, longevity
increases. According to a prediction of the World Bank (1998), the portion of people over 60
in OECD-countries will rise from 19.9% in 2000 to 31.2% in 2050. Almost a tripling from
7.3% to 20.7% is expected in Asia within this period3. [...]
1 See Fox/Palmer “New Approaches to Multipillar Pension Systems: What in the World is Going On?”, page 90
2 See Gruber and Wise, “Different Approaches to Pension Reform from an Economic Point of View, page 50
3 See Fox and Palmer, table 3.2
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. Pension Systems
- 2.1. Traditional PAYG Pension Systems
- 2.2. Notional Accounts
- 2.2.1. General Description
- 2.2.2. Risks in Notional Accounts Pension Systems
- 2.2.3. Example Italy
- 2.2.4. Transition Problems
- 2.3. Funded Pension System
- 2.3.1. General Description
- 2.3.2. Risks in Funded Pension Systems
- 2.3.3. Example Chile
- 2.3.4. Transition Problems
- 3. One-Pillar- versus Multi-Pillar Pension Systems
- 3.1. General Description
- 3.2. Example Switzerland
- 4. Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper delves into the challenges faced by traditional pension systems due to demographic shifts and outdated structures, leading to growing budget deficits. The authors explore various reform proposals, specifically those aiming for structural changes to address these issues. By examining theoretical approaches and practical implementations of structural pension reforms, the paper aims to evaluate advantageous alternatives for designing sustainable pension schemes and stimulate discussions on structural reforms. It also presents a comprehensive reform proposal.
- Sustainability of traditional pension systems
- Demographic challenges and the impact on pension systems
- Assessment of various pension reform proposals
- Evaluation of advantages and disadvantages of structural pension reforms
- Introduction of a novel reform proposal for a mixed pension system
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction This chapter outlines the growing concern over the sustainability of traditional pension systems worldwide, emphasizing the strain caused by demographic changes and the increasing number of retirees. It highlights the limitations of parametric reforms, which only address symptoms rather than the root cause of the problem. The chapter lays the foundation for the paper's focus on structural reforms, particularly those involving notional account systems and funded systems.
- Chapter 2: Pension Systems This chapter delves into the different dimensions of formal pension systems, focusing on the financing mechanism (funded or unfunded) and the calculation of benefits (defined benefit or defined contribution). It presents a detailed analysis of traditional PAYG systems, highlighting their challenges, such as high labor costs and the potential for competitive disadvantages. Additionally, it examines the characteristics of notional account and funded systems, discussing their strengths and weaknesses in detail.
- Chapter 3: One-Pillar- versus Multi-Pillar Pension Systems This chapter explores the concept of combining different pension systems into a multi-pillar approach. It provides a general overview of the multi-pillar model and presents Switzerland as a case study, illustrating the practical implementation of such a system.
Schlüsselwörter (Keywords)
This paper focuses on pension reform, PAYG systems, notional accounts, funded pension systems, multi-pillar pension systems, demographic changes, sustainability, structural reform, and policy recommendations.
- Quote paper
- Christoph Henseleit (Author), Verena Rosauer (Author), 2004, Major Pension Systems and Structural Reform Proposals for PAYG Pension Systems, Munich, GRIN Verlag, https://www.grin.com/document/24177