Financial Sustainability and Adequacy Issues on Social Security Pensions

Abstract

Social security pensions have two major requirements for satisfying the sincere desire of the public. One is financial sustainability, and the other is the adequacy of benefits. As the population aging went on, financial sustainability became more serious in almost all countries. A long list of policy options to ensure financial sustainability has been demonstrated globally. They are usually painstaking with tears and quite unpopular to the public. Nevertheless, many developed countries have already managed to implement these policy measures. The other requirement, adequacy, is desired for the elderly to maintain a decent living standard after retirement. If any pension system fails to meet this requirement, it will be politically unsustainable. Financial sustainability often violates the adequacy requirement. However, both requirements will not always be compatible with each other. Sophisticated balances between them are necessary for pension policymaking. This study first gives an overview of making social security pension systems financially sustainable. Ample experiences in developed countries are illustrated. Before going into discussions, fundamental characteristics of social security pensions and a need for periodic actuarial evaluations are mentioned. Then, it demonstrates the basic contents of pension adequacy from an economic perspective, explaining various relationships to poverty alleviation.