 What’s New in the Debate About Pay-as-you-go Versus Funded Pensions?Herve Boulhol and
Marius Lüske
A chapter in The Future of Pension Plans in the EU Internal Market, 2019, pp 37-53 from Springer Abstract: Abstract Recent history has shown that with tight public finances the costs associated with a transition from a PAYGO to a diversified pension system with funded and PAYGO components can be high. A number of countries backtracked on previously decided transitions, highlighting that the political risk of policy reversals is considerable. There is an actuarial equivalence between PAYGO and funded schemes. While, when an economy is dynamically efficient, a move from PAYGO to funding can boost future pension levels, it creates both winners and losers, thus implying some form of redistribution. Hence, choosing one type of financing over the other is essentially a political decision. While the economic condition for dynamic efficiency was typically fulfilled without ambiguity in the past, the current economic context questions whether this is still the case, suggesting to revisit the trade-off between PAYGO and funded schemes. Risk diversification remains a key argument for combining PAYGO and funded elements, but the benefits of risk-diversification should be weighed against the medium-term costs generated by the transition towards a multi-pillar system. Date: 2019 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:fimchp:978-3-030-29497-7_3 Ordering information: This item can be ordered from DOI: 10.1007/978-3-030-29497-7_3 Access Statistics for this chapter More chapters in Financial and Monetary Policy Studies from Springer |
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