Pension Financing, the Substitution Effect and National Savings

  • Gerard Hughes


The “graying” of Europe’s population has been accompanied by a number of reports which have drawn attention to decreases in fertility rates and increases in life expectancy which are likely to lead to substantial increases in the cost of pensions in the early decades of the next century.2 The Federal Trust report The Pension Time Bomb in Europe (Taverne, 1995) and the World Bank (1994) report Averting the Old Age Crisis describe these developments in stark terms heralding an impending old age crisis. Both reports argue that the only way to deal with this crisis is by radical change in which dependence on pay-as-you-go financed State pension schemes is drastically reduced in favour of privately funded occupational and personal pension plans. It is argued by Federal Trust and the World Bank that privatising pensions in this way will increase national savings. An increase in productive investment will, it is believed, follow from this. This, in turn, is expected to lead to higher growth rates which will enable the increased cost of pensions to be paid without increasing the burden on the State.


Pension Financing Pension Scheme Private Saving Private Pension State Pension 
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Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Gerard Hughes
    • 1
  1. 1.The Economic and Social Research InstituteIreland

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