July 2002

IZA DP No. 538: The Pension Transfer Program

The paper examines the following pension reform strategy that aims to defuse the pension time-bomb without giving rise to intergenerational conflict. Let people with rights to public pensions have the option of using a portion of their potential pensions to provide employment vouchers for employers that hire them. The policy is entirely voluntary; only those older workers and those employers who wish to avail themselves of this option will do so. The older workers retain the right to draw their public pensions and the employers have the right not to employ them. In effect, the policy involves taking some of the funds that would have financed public pensions and using them to provide employment subsidies. When a person takes advantage of the PTP over a given period of time, he loses his pension rights over that span and gains improved employment opportunities instead.