Controlling the effects of demographic risks: the role of pension indexation schemes
Published online by Cambridge University Press: 04 July 2005
Abstract
Within a model featuring demographic uncertainty, this paper studies a pension reform where public pension benefits are indexed to the total wage bill rather than to the average wage level. This implies a decline in the variability of contribution rates and an increase in the variability of replacement rates. While thus shifting some of the adjustment burden following demographic shocks to pensioners, the trade-off in risks is found to be fairly moderate.
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