PRIVATE OR PUBLIC PENSION INSURANCE?

Bogomil Manov

doi:10.12955/ejbe.v8i1.121

Abstract

The most recent trends in population dynamics and increased longevity risk have provoked a rigorous debate whether the private or the public pension insurance system should be predominant. The public pension insurance is dominated by the state that guarantees its stability, but is often compared to a pyramid or a Ponzi scheme. The private pension insurance provides personal retirement accounts and proper ownership of the accumulated funds, but its sustainability during prolonged market crises and inadequate risk sharing are often questioned. In order to address the issue, this study analyzes and compares a large set of arguments and popular opinions in favour and against both pension models. As a result of the study, a conclusion is drawn stating that both types of pension insurance, despite of their positive and negative features have their essential role nowadays. This study is part of a growing set of articles on the feasibility of using a proper combination of the two pension models and will contribute to future research on the topic and might benefit policymakers in taking an appropriate decision.

Highlights

The most recent trends in population dynamics and increased longevity risk have provoked a rigorous debate whether the private or the public pension insurance system should be predominant
The first one comprises those who embrace the principle of solidarity in the organization and management and direct institutional participation of the state in pension insurance
From technical point of view, it assumes that pensions paid to current pensioners that as a rule had already left the labour market are financed from contributions paid by current workers

Summary

Introduction

The most recent trends in population dynamics and increased longevity risk have provoked a rigorous debate whether the private or the public pension insurance system should be predominant. The state can be in charge of such activities, though, it is atypical for a country to deal with private investment management of pension funds.

Results

Conclusion