MOVING TOWARD FUNDED PENSION SCHEME: PURE ECONOMIC ARGUMENT DUE TO POPULATION AGING OR RESPONSIBILITY ABDICATION OF GOVERNMENTS?

Abstract

This study adopts a unique angle towards exploring pension plans in a modern western market influenced by aging. In particular, much weight has been attributed to the effects of the Covid-19 pandemic crisis and frequent market turmoil. The full set of players involved in the pension system has been considered with its different interests among both the current and future generations In addition, we factor in the difference among earning cohorts. By using the overlapping generations model and Monte Carlo simulations, we note that in a wide macroeconomic range, pension equilibrium among the market's players lies with the unfunded pension scheme despite the significant influence of aging. Contrary to the classic economic arguments presented by the World Bank and IMF, ideas that were widespread during the 1980s and 1990s, the choosing of pension system is much more complex. Public administrations must take into account not only the aging rhythm and market expected yields but also other parameters, such as the current and future utility perspective, the government's debt price, GDP per capita growth rate, risk aversion, and the possibility of market turmoil.