21/05/2008 10:37:33 am
A Quick Pension Reform. The normal kind of pension system in the Western world is called pay as you go. That means that you don′t pay for your own retirement. Instead, today′s workers pay for today′s retired, and the workers of tomorrow are expected to pay for us. Of course that is a huge burden to put on future generations. There is a great need to shift to funded pensions, preferrably with private accounts. Then you will pay for your own pension.

But the shift is not easy. If we want a system where you pay your own pension, we still have to keep the promise to those that expect uis to pay for them. Most of them have no other income. So I always thought that there would either be a case of us paying twice or that it would have to take decades - until nobody is left in the old system. But talking to José Piñera - architect of Chile′s pension reform, currently at Cato Institute - I realised the choice is not that bad.

In most countries, the state has numerous other assets, not least state-owned companies. If the state were to sell such assets to private owners, it would gain large amounts of capital. That could be used to finance the pensions for the people still in the old pay as you go-system. That way, a pensions reform can actually be quite quick.