Adjusting the Earnings-related Pension System to Low Growth

Tarmo Valkonen and Jukka Lassila

No 13, ETLA Reports from The Research Institute of the Finnish Economy

Abstract: 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.

Keywords: Economic growth; Earnings-related pension system; Intergenerational redistribution (search for similar items in EconPapers)
JEL-codes: D58 H55 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-06-17
New Economics Papers: this item is included in nep-age and nep-dem
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