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Should Public Pensions be Funded?

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  • Richard Hemming

Abstract

This paper outlines some of the arguments for and against the funding of public pensions, with a view to establishing whether there is an economic basis for judging it to be superior to pay‐as‐you‐go (PAYG). It is concluded that if funding has an edge over PAYG, it is not an overwhelming one. While funding may have a modest cost advantage over PAYG and have superior characteristics from the standpoint of intergenerational redistribution, its alleged superiority in handling demographic and economic risk, as well as in signalling future pension costs, is difficult to justify. While theoretical arguments tend to be consistent with the view that funding will be associated with higher saving than PAYG, convincing empirical support is missing. Nevertheless, the momentum for shifting from PAYG to funding remains. But if there is to be such a shift, there may also be a case for shifting from public to private pension provision.

Suggested Citation

  • Richard Hemming, 1999. "Should Public Pensions be Funded?," International Social Security Review, John Wiley & Sons, vol. 52(2), pages 3-29.
    • Handle: RePEc:wly:intssr:v:52:y:1999:i:2:p:3-29
    DOI: 10.1111/1468-246X.00036
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    Cited by:

    1. Marianne A. Ferber & Patricia Simpson, 2009. "Whither Systemic Reform? A Critical Review of the Literature on the Distributional and Income Adequacy Effects of Systemic Pension Reforms," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 20(3), pages 254-276.
    2. Rodrigue Mendez & Lionel Ragot, 2010. "Quel avenir pour le Fonds de réserve pour les retraites ?," Économie et Prévision, Programme National Persée, vol. 194(3), pages 57-78.
    3. Antón Pérez, José Ignacio, 2006. "The Reform of the Pension Systems in Easterm Europe and these Impact about the Efficiency and Equity/La reforma de los sistemas de pensiones en Europa del Este y su impacto sobre la eficiencia y la eq," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 24, pages 643(20á)-64, Agosto.

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