The Transition from Distributive Pension System to Accumulative Type: The Results and Efficiency Forecast

Abstract

The paper presents comparative analysis of two models of pension system: accumulative and distributive (pay-as-you-go) ones based on Russian and world experience. It is shown that "the effect of dual burden" is formed within the transition period which lasts about 50 years and will reach its maximum in 22 years after the start of the reform. Under Russian conditions returns on pension capital fail to compensate for inflation and they are significantly lower than indexation of distributive pensions and wages growth rates. The model simulations have provided the following results: given the length of accumulation for 40 years; the longevity period - 19 years; employees-retirees ratio is going down, the accumulative pension system is likely to be more effective than the distributive one if returns on pension capital are not less than GDP growth rates and operational costs of the accumulative system are equal to zero. Otherwise the distributive pension system is more preferable.