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The rate of return of pay-as-you-go pension systems: a more exact consumption-loan model of interest

Published online by Cambridge University Press:  04 July 2005

OLE SETTERGREN  and
BOGUSLAW D. MIKULA
OLE SETTERGREN
Affiliation:
The Swedish Social Insurance Agency
BOGUSLAW D. MIKULA
Affiliation:
The Swedish Social Insurance Agency
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Abstract

The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 4 , Issue 2 , July 2005 , pp. 115 - 138
Copyright
© 2005 Cambridge University Press

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Footnotes

The paper was presented at the NDC Conference in Sandhamn, Sweden, September 28–30, 2003 and is a forthcoming chapter in Pension Reform: Issues and Prospects for Non-Financial Defined Contribution (NDC) Schemes edited by Robert Holzmann and Edward Palmer, World Bank, 2005.