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Pension design and the failed economics of squirrels

Barr, Nicholas ORCID: 0000-0002-5325-2055 (2021) Pension design and the failed economics of squirrels. LSE Public Policy Review, 2 (1). ISSN 2633-4046

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Identification Number: 10.31389/lseppr.40

Abstract

This paper explores the nature of reciprocity between workers and pensioners, starting from the observation that what pensioners consume has mostly to be produced by younger workers, and therefore reciprocity in some form is inherent. The opening section argues that a worker can try to arrange consumption in retirement by (a) storing current production or (b) building claims on future production. However, storing current production (the squirrels model) does not work well, so that the main vehicle is building claims on future production. There are two approaches to doing so – through promises (which lie at the core of Pay-As-You-Go (PAYG) plans), or by accumulating financial assets which can be exchanged for goods and services (the basis of funded plans). The second part of the paper establishes that a central element in assessing pension arrangements is the extent to which investment is in productive assets. The third part considers the durability of different pension regimes. The paper’s central conclusions are (a) that reciprocity is inherent in pension plans, (b) that the specifics of pension design are in many ways secondary, and (c) that what really matters are economic growth (increasing what is available to share between workers and pensioners) and good government (which will manage PAYG pensions responsibly and/or sustain the economic stability and regulatory capacity that underpin funded pensions).

Item Type: Article
Official URL: https://ppr.lse.ac.uk/
Additional Information: © 2021 The Author
Divisions: European Institute
Subjects: H Social Sciences > HD Industries. Land use. Labor
JEL classification: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation)
J - Labor and Demographic Economics > J1 - Demographic Economics > J14 - Economics of the Elderly; Economics of the Handicapped
J - Labor and Demographic Economics > J1 - Demographic Economics > J18 - Public Policy
Date Deposited: 14 Sep 2021 15:45
Last Modified: 15 Sep 2021 09:24
URI: http://eprints.lse.ac.uk/id/eprint/111927

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