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How long can the ‘Pay As You Go' pensions last? (followed by the case-study of France)

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  1. Introduction
  2. Pension scheme and today's economic world
    1. The burden of an ageing population
    2. Redefinition of government role in the current context of globalization
    3. The division of national income between active persons and retirees
  3. Pension funds: The relevant model to overcome failures
    1. The growing importance of pension funds, deriving from unrivaled advantages
    2. The current drawbacks associated to pension funds
    3. The necessary co-ordination of the two systems
  4. The case study of France
    1. Demographic and financial data
    2. The French answer
    3. The voluntary gradual retirement scheme and specific 'regimes'
  5. Conclusion
  6. Bibliography

Most countries do provide retirement pension schemes within the framework of Pay As You Go pensions. This system however encounters today some unprecedented drawbacks, mainly due to the burden of an ageing population. The future of the retirement system is a real economic concern, not simply a financial one, which needs to be addressed, if the demographic shock is not to mean an inflationary shock. Financial markets know indeed how to transfer in due course nominal debts, but are unable to address real ones. In that regard, shortages in the working population and unemployed with huge nominal debts may induce inflationary bubbles. The funding system may thus be questioned, the risks for holders of nominal assets being unrivalled. Reforms are then to be implemented (I). To shore up this reeling system, pension funds, whose growing popularity cannot be argued, are hailed as the perfect option to address the current failures of Pay As you go pension system. Though, dashing hopes that pension funds are the most efficient way to overcome those failures may be in tatters (II).

[...] The case study of France The Prime Minister advocated a going-on Pay As You Go pension system in his speech dated the 21st of March. Though financing needs adapted to real economic concerns are to be implemented. répartition est le symbole de la chaîne de solidarité qui relie entre elles les générations. La répartition est un des termes les plus importants du pacte social de la Nation Demographic and financial data. According to available demographic projections, the ratio of people over 60 years old to people between 20 to 59 is to increase from 37 to 70% between now and the year 2040, if the present level of fertility ( 1.8 children per woman) hovers. [...]

[...] This scheme should be improved in order to enable wage- earners to receive end of career payments, and also to accumulate supplementary pension rights according to the actuarial equivalence principle ?regimes' are currently ensuring the retirement pension system in France: * creation in 1998 of the reserve fund with new resources since 1999 (surplus from the CNAV and from the FSV, contributions from the Caisses d'épargne and Caisse des dépôts et consignations, and sales from mobile phones licences). This fund may equal billion francs by 2020, meaning half of the anticipated deficit for the retirement system between 2020 and 2040. * creation of the Conseil d'orientation des retraites to ensure a coherent system grounded on equity and solidarity between the systems. * [...]

[...] The division of national income between active persons and retirees: a questionable division addressing both Pay As You Go pensions and pension funds - Whether pensions are fully funded (by past savings in financial assets) or whether they are drawn from a Pay-As-You-Go social security system, they must be financed by reduced consumption on the part of active population. The only alternative is to reduce some of the other components of Gross Domestic Expenditure (such as fixed investment, stock building, government consumption or net exports), any of which would have detrimental effects on public services, the balance of payments or future growth. [...]

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