Sustaining Algeria’s Retirement System in the Population Aging Context: Could a Contribution Cap Strategy Work?

Farid Flici and Inmaculada Dominguez-Fabian
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Inmaculada Dominguez-Fabian: Department of Financial Economics and Accounting, Faculty of Business, University of Extremadura, 10071 Cáceres, Spain

Risks, 2024, vol. 12, issue 6, 1-11

Abstract: Previous research predicts an increasing financial deficit in Algeria’s PAYG retirement system, mainly due to rapid population aging, and parametric adjustments will be insufficient to alleviate this imbalance. Mitigating the effects of population aging will necessitate further intervention. In this work, we analyze how capping contributed salaries can help to mitigate the effects of population aging on the retirement system. Under generous Pay-As-You-Go schemes, promised pension payouts far exceed contributions. Thus, restricting contributions is expected to reduce the burden of future benefits by accepting lower contributions today, while directing public subsidies to low-income individuals. We simulate the future evolution of the financial balance of Algeria’s retirement system under various contributable salary caps versus various scenarios of environmental evolution and potential parametric reform actions. The results demonstrated that a 40% cap, along with major parametric reforms and an ideal environment, would help achieve a cumulatively balanced system in the long run.

Keywords: retirement; sustainability; aging; contribution cap; PAYG; Algeria (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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