Abstract
Private provision for the needs of the elderly takes two forms: (1) intra-family solidarity, whereby children look after their parents and any other old family members, effectively representing a form of insurance, and (2) individual savings and dissavings over the life cycle, involving life insurance, annuities, as well as any other assets, including saving and pension schemes which may be set up voluntarily by employers and regulated by contract, with contributions which are a form of deferred earnings.
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Notes
- 1.
Strictly speaking the state can also interfere with intra-family arrangements: i) by enforcing direct support of invalid or elderly dependents within the nuclear and even the extended family; ii) by population policy, usually aimed at lowering the birthrate thus reducing this form of old age provision (for instance in China through the one-child-family policy). It has been argued that, on the contrary, the state should encourage population growth precisely to reduce the burden of older generations on those currently employed, treating population growth as a public good—a rather far-fetched view.
- 2.
“The state will need to evaluate the relationship between savings of non-pensioners and the expenditure of pensioners in the light of its desired macroeconomic balance. If those savings and expenditures do not result in the desired balance then the state will need to adjust taxation and/or monetary policy accordingly.” (Eatwell 1997).
- 3.
Namely: the USA, Japan, Germany, France, Italy, the UK, Canada, Sweden.
- 4.
If Doomsday comes after a prior and generally believed announcement, all intertemporal transactions are going to be disrupted and the state will have to recur to direct controls regardless of the pension system adopted.
- 5.
The modalities of introduction differ: PAYG can be introduced instantaneously, paying out pensions from time 0; whereas an FF system initially has to wait before paying out pensions or can be introduced only fractionally.
- 6.
A financial asset is simply the claim of one economic subject on another; in the aggregate these claims net out to zero. The acquisition of financial assets today affects the distribution of income in the future but not, in itself, the total flow of income. This cannot be taken to imply that the two systems are otherwise equivalent. Generations are not economic subjects as such: with the capitalisation system there is a transfer from current profits on the basis of entitlements generated by past savings, without levying a burden on the current generation; with the PAYG system there are transfers out of current contributions and taxes. Thus the pure capitalisation system is not a burden on the budget whereas as we have seen the redistribution system is a Ponzi scheme with negative capital, though it is always sustainable on some scale.
- 7.
It could be objected that, under the pay-as-you-go-system being gradually abandoned, current employees’ contributions were effectively being borrowed at zero interest, whereas now government borrowing may be expensive; but in reality under PAYG the prospective pensions of current employees would grow in line with the real wage, i.e. by using their contributions to pay current pensions the state was borrowing at an effective real interest rate geared to the rate growth of wages—hardly a zero cost when prosperity is on the increase.
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Nuti, D.M. (2023). Alternative Pension Systems: Generalities and Reform Issues in Transition Economies. In: Estrin, S., Uvalic, M. (eds) Collected Works of Domenico Mario Nuti, Volume II . Studies in Economic Transition. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-23167-4_11
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