1/2000

Adjusting Pay-as-you-go Financed Pension Schemes to Increasing Life Expectancy

Winfried Schmähl, Holger Viebrok

This paper deals with the impact of increasing life expectancy exclusively on pay-as-you-go (PAYG) financed pension schemes and with measures that aim at solving the resulting budgetary problems. Relevant determinants for financial considerations are particularly the ratio of beneficiaries to contributors and the pension level. The focus is on measures integrating indicators of life expectancy directly into pension calculation. The authors discuss the effects of a) a general reduction of the pension level by introducing a life expectancy indicator into the pension formula, b) a reduction of the initial average pension at a given retirement age or c) by an increase of the retirement age itself in case of increasing life expectancy. The authors conclude that postponing retirement age is an adequate measure for coping with the financial effects of increasing life expectancy.

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