A Tale of Two Pensions Reforms: a Sraffian View

In most countries Pay-as-you-go (PAYG) is the dominant pension scheme. The conventional view is that the secular demographic developments (lower fertility rates and increasing longevity) and, in the short period, the retirement of the baby-boom generation, threaten the sustainability of PAYG since an increasing number of long-surviving elderly persons will weigh upon a falling number of young workers. We shall critically examine here two main pension reforms. The first is a re-engineering of PAYG according to the principles of the Notional Defined Contribution (NDC) plans. The partial or complete substitution of PAYG with Fully-Funded (FF) pension schemes is seen as a second solution. Section 1 will examine the NDC reforms. Section 2 will expound some criticism of the adoption of an FF schemes. Section 3 will present our view of the sustainability of PAYG as an economic and not as a demographic issue.