VID Colloquium
The Pay-As-You-Go vs Funded pension System in low-mortality countries: a demographic perspective
Dalkhat Ediev, VID, IIASA, WIC
Date: Thu, 12 May 2011 , Time: 11:00-12:00
Comparisons of the alternative pension systems, so far, were based on simplified demographic models such as Samuelson’s two-age overlapping-generations model. At best, the systems were contrasted using a stable population model. Here, based on recent study on longevity prospects in developed countries, we study pension schemes in a more realistic population with changing longevity and show dramatic advantage to the PAYG system. Increasing longevity benefits the PAYG scheme as compared to the FS because current workers will live longer at retirement than current retirees and, therefore, find it easier to fund current pensions rather than saving for their own future benefits. The paper presents methodology and empirical findings. The demographic advantage to the PAYG system as compared to the FS mounts currently to 50% in terms of the benefit/contribution ratio or to 1% p.a. in terms of the real rate of return in low-mortality countries. In terms of age at retirement, a fully funded pension system would currently require people to retire about five years later as compared to a PAYG system because of the differential mortality effects.
About the presenter
Dalkhat Ediev is researcher at Vienna Institute of Demography (Austrian Academy of Sciences) of Wittgenstein Centre for Demography and Global Human Capital since 2006. He has graduted from Moscow Institute of Physics and Technology (1993), where he has also defended his PhD thesis (1999). He holds the Docent (2002) and Doktor Nauk in Physics and Mathematics (2008) degrees by the Russian Highest Attestation Commission. His research interests cover demographic methods and models and population projections..