OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Fiscal Alternatives of Moving from Unfunded to Funded Pensions

The reform of public pension systems has become a key policy issue in many countries. Because conventional approaches to reform largely unfunded retirement income schemes prove politically and economically difficult, attention has focused on the option of a partial shift towards funded provisions. Yet this too presents problems. This paper outlines the potential benefits of such a shift and highlights the main fiscal options and constraints. The liabilities to the current generation of retirees and workers under an unfunded pension scheme constitute a huge, hidden public debt. Most countries find that making this implicit debt fully explicit, repaying it and thus reversing the initial redistribution towards the start-up generation, lie beyond their political, economic and fiscal capacities. Thus, a shift requires simultaneous steps of the following sort: (i) a benefit reform of the unfunded scheme, reducing the implicit debt; (ii) a redesign of the basic tier remaining unfunded, to ...


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