Most countries do provide retirement pension schemes within the framework of Pay As You Go pensions. This system however encounters today some unprecedented drawbacks, mainly due to the burden of an ageing population. The future of the retirement system is a real economic concern, not simply a financial one, which needs to be addressed, if the demographic shock is not to mean an inflationary shock. Financial markets know indeed how to transfer in due course nominal debts, but are unable to address real ones. In that regard, shortages in the working population and unemployed with huge nominal debts may induce inflationary bubbles. The funding system may thus be questioned, the risks for holders of nominal assets being unrivalled. Reforms are then to be implemented (I). To shore up this reeling system, pension funds, whose growing popularity cannot be argued, are hailed as the perfect option to address the current failures of Pay As you go pension system. Though, dashing hopes that pension funds are the most efficient way to overcome those failures may be in tatters (II).
[...] The case study of France The Prime Minister advocated a going-on Pay As You Go pension system in his speech dated the 21st of March. Though financing needs adapted to real economic concerns are to be implemented. répartition est le symbole de la chaîne de solidarité qui relie entre elles les générations. La répartition est un des termes les plus importants du pacte social de la Nation Demographic and financial data. According to available demographic projections, the ratio of people over 60 years old to people between 20 to 59 is to increase from 37 to 70% between now and the year 2040, if the present level of fertility ( 1.8 children per woman) hovers. [...]
[...] This scheme should be improved in order to enable wage- earners to receive end of career payments, and also to accumulate supplementary pension rights according to the actuarial equivalence principle ‘regimes' are currently ensuring the retirement pension system in France: * creation in 1998 of the reserve fund with new resources since 1999 (surplus from the CNAV and from the FSV, contributions from the Caisses d'épargne and Caisse des dépôts et consignations, and sales from mobile phones licences). This fund may equal billion francs by 2020, meaning half of the anticipated deficit for the retirement system between 2020 and 2040. * creation of the Conseil d'orientation des retraites to ensure a coherent system grounded on equity and solidarity between the systems. * [...]
[...] As far as the labour market is concerned, the emergence of new ways of organising production (i.e in the industrial sector), associated with new scientific advances in the production process, lead to an erosion of the Fordist/Taylorist production model and the formal relations of the wage system, whose payrolls historically provided the principal resources for financing social security systems, which were only later increased by additional tax revenues. The new forms of service provision (self- employment and informal employment segments, resurgence of home work, growth in the tertiary sector, increase in temporary or part-time work) tend not only to corrode the financing bases but also to increase demands on the social security systems. [...]
[...] Factors of attractiveness of funded pensions - the Pay As you Go pension system ensured by the state (in the US for instance, replacement rates are low at 62 years old) - tax privileges (in the US, the Netherlands and the UK, tax concessions are highly generous and external funding mandated; whereas in France, tax disadvantages and generous social security undermine pension funds) The positive effects of pension funds: - pension funds as a retirement-income insurance - positive effects on capital markets: pension funds indeed boost capital-market instruments by increasing long-term savings ( derivative securities, portfolio insurance strategies), promoting liquid markets (specialised wholesale markets). [...]
[...] The combination goes a long way towards explaining the ILO's hesitancy in endorsing fully funded schemes as the only source of retirement income for the majority of average- to low- income workers. The necessary co-ordination of the two systems Definitions: - 1st pillar: statutory pensions system: compulsory public pensions with moderate benefits, financed on a PAYG basis. - 2nd pillar: occupational pensions arranged by employers and employees on the market: compulsory for all employees. - 3rd pillar: private savings. Three conclusions can thus be drawn: - To search for different sources for financing social security schemes, i.e a fall in taxes on formal employment. [...]
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