April 2009

IZA Policy Paper No. 4: How to Avoid a Pension Crisis: A Question of Intelligent System Design

published in: CESifo Economic Studies, 2010, 56, 21-37

Conventional pension systems suffer from a design defect which makes them financially unsustainable, and a source of inefficiency for the economy as a whole. The paper outlines a second-best policy which includes a public pension system made up of two parallel schemes, a Bismarckian one allowing individuals to qualify for a pension by working and paying contributions in the usual way, and an unconventional one allowing them to qualify for a pension by having children, and investing time and money in their upbringing.