Savings and Implicit Debt in Pension Systems

Abstract

In recent years, there has been an ongoing debate on the restructuring of pay-as-you-go pension systems. The study, which models demographic effects, compares two types of pay-as-you-go pension systems (those with and without notional individual accounts) on the basis of two features (savings and implicit debt in the pension systems). There is a strong link between these features in a theoretical framework. According to one of the results featured in the study, in case of equal revenues and expenditures, a smaller population growth rate and a higher life expectancy together yield a smaller savings ratio in both pension systems, while the effect on implicit debt is unclear. Another result shows that a lower capital market yield may also be accompanied by greater implicit debt and higher savings ratio in both pension systems. The results also highlight the complexity of the effects of demographic changes on pension systems.