9th Symposium on Finance, Banking, and Insurance
Universität Karlsruhe (TH), Germany, December 11 - 13, 2002

Abstract

Increasing Life Expectancy and Reforms in Pension Plans

Yaffa Machnes

Department of Economics
Bar-Ilan University, Israel

We compare the different possibilities to reform a funded pension plan, whose balance is threatened by the decrease in mortality. Since the plan is mandatory, the welfare of workers might be depleted if contributions increase or if retirement age is raised.

The empirical study of the Israeli data shows that a reform which decreases the pension's benefits is the optimal scenario, when compared with the options of increasing the retirement age or increasing pension fund contributions. We also show that giving workers the freedom to choose the retirement age and the induced pension benefits is the optimal policy and increases the welfare of workers.