Pension System Reforms

In typical pension systems, individuals are asked to make contributions and based on the number of contributions made and the level of those contributions, a pension is awarded. Contributions from workers generally finance these pensions. Since higher income individuals tend to make more frequent contributions due to a more stable work history and higher contributions based on their higher wages, pension expenditures are naturally skewed toward those who paid for them, the higher income individuals. The normal tools for poverty and social impact analysis are often not applicable given the contributory nature of the systems. The paper looks at these issues, provides a framework in which to view pension reforms, and provides some pension-specific tools which do allow a sensible poverty and social impact analysis to take place.