Automatic Balancing Mechanisms for Pay-As-You-Go Pension Finance: Do They Actually Work?

Maria del Carmen Boado Penas*, Humberto Godínez-Olivares, Steven Haberman

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

In pay-as-you go pension systems, automatic balancing mechanisms (ABMs) are designed to face adverse demographic and economic changes. In this respect, ABMs can be defined as a set of pre-determined measures established by law to be applied immediately as required according to an indicator that reflects the financial health of the system. The purpose of ABMs is, through successive application, to restore the sustainability of the pay-as-you-go pension system. First, adjustments can be made in benefit levels to reflect changes in life expectancy; second, adjustments can be made through the revaluation of the contribution basis of earlier years; and third, adjustments may occur through the revaluation of pensions in payment. Countries such as Finland, Portugal, Germany, Sweden and Japan, amongst others, have already legislated and included different types of mechanisms into their pension systems. This chapter aims to explore the different mechanisms that have been recently set up and analyse their effectiveness in terms of financial sustainability and adequacy of benefits.

Original languageEnglish
Title of host publicationEconomic Challenges of Pension Systems
Subtitle of host publicationA Sustainability and International Management Perspective
PublisherSpringer
Chapter15
Pages341-358
Number of pages18
ISBN (Electronic)9783030379124
ISBN (Print)9783030379117
DOIs
Publication statusPublished - 21 Mar 2020

Keywords

  • Adequacy
  • Adjustment
  • Ageing
  • Public pensions
  • Sustainability
  • Pension Sustainability
  • Pension Reforms
  • PAYG Systems
  • French Madatory Occupational Pension Scheme
  • Swedish Public Pension System
  • Pension Reforms in Latin America
  • Welfare in Advanced Economies
  • Financial Sustainability of Pension Systems
  • Complementary Pensions
  • Equity of Public Pension Systems
  • Adequacy of Public Pension Systems
  • Pay-As-You-Go Pension Finance
  • Mixed Two-Step Pension System
  • SIEFOREs
  • Household finance

ASJC Scopus subject areas

  • General Economics,Econometrics and Finance
  • General Business,Management and Accounting

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