ABSTRACT
Economists around the world are by now quite familiar with the pitfalls of a pay-as-you-go pension system, namely a system whereby taxes are collected from workers and paid as benefits to retirees who are their contemporaries. An aging society coupled with the prospect of increasing longevity is causing financial strains in public pension schemes from Europe to America 1 (see Table 8.1). A former chairman of New Jersey’s pension fund recently warned that US public pensions could face a shortfall of $2,500 billion. According to Orin Kramer:
States face cost pressure, most prominently from retirement benefits and Medicaid [the health program for the poor]…. One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back. 2
Public pension expenditure as a percentage of GDP in OECD countries https://www.niso.org/standards/z39-96/ns/oasis-exchange/table">Public expenditure as a percentage of GDP
1990
1995
2000
2002
2003
2004
2005
2006
Australia
2.8
3.4
3.6
3.2
3.2
3.4
3.2
3.6
Austria
11.1
12.1
11.9
12.3
12.4
12.2
12.2
12.1
Belgium
6.5
6.9
6.8
6.9
7.0
7.0
7.0
8.1
Canada
3.8
4.2
3.9
3.9
3.9
3.8
3.7
3.6
France
9.0
10.4
10.3
10.2
10.3
10.4
10.6
–
Germany
9.4
10.0
10.5
10.9
11.0
11.0
11.0
11.7
Greece
9.3
9.1
10.0
10.4
10.3
10.3
10.7
–
Italy
8.2
9.3
11.1
11.2
11.3
11.4
11.5
12.0
Japan
4.0
5.1
6.2
6.9
7.1
7.2
7.4
–
Korea
0.6
1.1
1.2
1.0
1.1
1.2
1.3
1.3
Poland
4.1
7.6
9.6
10.8
11.0
10.8
10.4
10.4
Sweden
7.0
7.4
6.7
6.7
7.2
7.2
7.0
7.7
United Kingdom
4.6
5.1
5.2
5.3
5.3
5.4
5.5
7.5
United States
5.1
5.3
5.1
5.3
5.3
5.3
5.3
–
OECD average
5.6
6.1
6.2
6.4
6.4
6.4
6.5
7.7
Sources: https://www.globalaging.org/pension/world/2008/OECD.pdf" xmlns:xlink="https://www.w3.org/1999/xlink">www.globalaging.org/pension/world/2008/OECD.pdf; https://www.globalaging.org/pension/world/2009/OECD.pdf" xmlns:xlink="https://www.w3.org/1999/xlink">www.globalaging.org/pension/world/2009/OECD.pdf.