Possible reforms of PAYG pension systems

What is it about?

This study outlines and compares the possible ways of reforming modern, pay-as-you-go (PAYG) pension systems – reforms which are necessitated by unfavourable demographic processes. This comparison is made in a general context and the examination does not focus on any specific country. Pension reform ideas usually stay within the pension paradigm outlined by Samuelson (‘AI scenario’). While also describing these approaches, the study points out – citing lesser-known ideas in this context – that there are several ways out of the situation. There is an alternative to Samuelson's framework within the pension paradigm (pension reform based on the ‘IAI scenario’), but the problems can also be managed starting from that framework, by redistributing available job opportunities or introducing a basic income. However, one country, independently of the others, may not choose one of these alternatives.

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Why is it important?

Pension is the second most important source of income after wages, the basis of the financial security of the aged people. The majority of the pension income comes from PAYG systems, which have serious design problems, so their sustainability is questionable, their reform is inevitable. But the reform has to be well established to avoid repeating mistakes once made on this field.

Perspectives