III Public Pension Plans, Their Reform, and Saving

Abstract

This section describes how public pension plans could be expected, on a priori grounds, to affect saving. It uses the LCH only as a starting point and acknowledges the implications of imperfect capital markets and imperfect information about the future. Three cases are presented: (1) Introduction of a PAYG plan where no plan existed previously. The literature invariably covers such cases, and the conclusions are relevant for the many countries that are contemplating a substantial expansion of an existing plan with narrow coverage. (2) Incremental reform to an established PAYG plan with universal coverage. (3) Introduction of a defined-contributions plan. Some of the main findings of this section are illustrated mathematically in Appendix I.

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