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The Evolution of Public Pension Schemes
1. 1 An introduction to the problem This book deals with the development of public pension schemes. The operation of public pension schemes has drawn a great deal of attention recently due to ageing of the population which has become apparent since the 19 70s. This would probably have been less of a problem if these schemes had been financed by a Capital Reserve (abbreviated from now on as CR) system. As is well-known, in a pure CR-system individuals (or generations) save for their own retirement. The (average) rate of return on the premiums paid in this system equals the real rate of interest and, in principle, changes in the rate of population growth do not affect the premium rate or the benefit rate of the system. Most public pension schemes, however, are financed by a Pay-As-You-Go (abbreviated from now on as PAYG) system. In this system current pension payments are financed by current premium payments. In contrast to the CR-system intergenerational transfers occur in this system. If the number of retired people increases relative to the number of workers the premium rate will increase under PAYG. In itself this increase does not have to imply any concern for the premium paying population. What counts is whether the rate of return under a PAYG-system will fall (too far) below the rate of return the CR-system is offering.
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The Evolution of Public Pension Schemes
1. 1 An introduction to the problem This book deals with the development of public pension schemes. The operation of public pension schemes has drawn a great deal of attention recently due to ageing of the population which has become apparent since the 19 70s. This would probably have been less of a problem if these schemes had been financed by a Capital Reserve (abbreviated from now on as CR) system. As is well-known, in a pure CR-system individuals (or generations) save for their own retirement. The (average) rate of return on the premiums paid in this system equals the real rate of interest and, in principle, changes in the rate of population growth do not affect the premium rate or the benefit rate of the system. Most public pension schemes, however, are financed by a Pay-As-You-Go (abbreviated from now on as PAYG) system. In this system current pension payments are financed by current premium payments. In contrast to the CR-system intergenerational transfers occur in this system. If the number of retired people increases relative to the number of workers the premium rate will increase under PAYG. In itself this increase does not have to imply any concern for the premium paying population. What counts is whether the rate of return under a PAYG-system will fall (too far) below the rate of return the CR-system is offering.
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The Evolution of Public Pension Schemes

The Evolution of Public Pension Schemes

by Harrie Verbon
The Evolution of Public Pension Schemes

The Evolution of Public Pension Schemes

by Harrie Verbon

Overview

1. 1 An introduction to the problem This book deals with the development of public pension schemes. The operation of public pension schemes has drawn a great deal of attention recently due to ageing of the population which has become apparent since the 19 70s. This would probably have been less of a problem if these schemes had been financed by a Capital Reserve (abbreviated from now on as CR) system. As is well-known, in a pure CR-system individuals (or generations) save for their own retirement. The (average) rate of return on the premiums paid in this system equals the real rate of interest and, in principle, changes in the rate of population growth do not affect the premium rate or the benefit rate of the system. Most public pension schemes, however, are financed by a Pay-As-You-Go (abbreviated from now on as PAYG) system. In this system current pension payments are financed by current premium payments. In contrast to the CR-system intergenerational transfers occur in this system. If the number of retired people increases relative to the number of workers the premium rate will increase under PAYG. In itself this increase does not have to imply any concern for the premium paying population. What counts is whether the rate of return under a PAYG-system will fall (too far) below the rate of return the CR-system is offering.

Product Details

ISBN-13: 9783642456558
Publisher: Springer Berlin Heidelberg
Publication date: 03/09/2012
Series: Microeconomic Studies
Edition description: Softcover reprint of the original 1st ed. 1988
Pages: 287
Product dimensions: 6.69(w) x 9.61(h) x 0.03(d)

Table of Contents

1 Introduction.- 1.1 An introduction to the problem.- 1.2 Outline of the book.- 2 The History of Transfer Payments for the Old.- 2.1 Introduction.- 2.2 The history of old-age transfers before government intervention.- 2.3 The history of three public pension plans compared.- 2.4 What can we learn from history?.- 2.5 Summary.- 3 The Case for Government Intervention.- 3.1 Introduction.- 3.2 Market failure.- 3.3 Paternalism.- 3.4 Redistribution.- 3.5 Administrative efficiency.- 3.6 Political and economic arguments compared.- 3.7 Summary.- 4 The Choice of Financing Method: Economic Motives.- 4.1 Introduction.- 4.2 Economic considerations.- 4.3 The generalized Aaron-condition.- 4.4 Conversion policies.- 4.5 Summary.- 5 The Choice of Financing Method: Political Motives.- 5.1 Introduction.- 5.2 Decision-making in a direct democracy.- 5.3 A simple decision-making model.- 5.4 An application to the Netherlands.- 5.5 Generalizations and other models.- 5.6 Summary.- 6 Tax-Transfer View, Altruism and Political Power.- 6.1 Introduction.- 6.2 The tax-transfer versus the insurance vision.- 6.3 Altruism and the public pension scheme.- 6.4 Collective decision-making and public pensions.- 6.5 Altruism and imperfect capital markets.- 6.6 Summary.- Appendix 6A Altruism and the Aaron-condition (the non-cooperative case).- Appendix 6B Stackelberg-behavior and future positive savings.- 7 Uncertainty and Redistribution.- 7.1 Introduction.- 7.2 Financing method and redistribution.- 7.3 Risk aversion and public pension plans.- 7.4 Summary.- Appendix 7A Redistribution and financing method: Z generations.- Appendix 7B Intragenerational redistribution.- Appendix 7C Intergenerational redistribution.- 8 The Rise and Evolution of Payg-Systems.- 8.1 Introduction.- 8.2 Survey of models.- 8.3 A decision-making model with uncertainty and constant Aaron-variable.- 8.4 Public pension plans under a non-constant Aaron-variable.- 8.5 The future of the PAYG-system.- 8.6 Discussion and summary.- 9 Public Pensions in a Small Open Economy.- 9.1 Introduction.- 9.2 The model.- 9.3 A simulation: consumers are certain of the future of the PAYG-scheme.- 9.4 Conversion policies.- 9.5 Decision-making under uncertainty.- 9.6 Summary.- 10 An Evaluation.- 10.1 Introduction.- 10.2 The facts to be explained.- 10.3 Explanations offered in the literature on public pension schemes.- 10.4 The model used.- 10.5 The results obtained.- 10.6 Will PAYG-financed public pension schemes continue to exist?.- Notes.- References.- Author Index.- List of Symbols.
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