The Actuarial Balance of the Pay-as-You-Go Pension System: 'American' Model versus 'Swedish' Model

Abstract:     
The aim of this paper is to show the advisability of making it compulsory to draw up an actuarial balance in pay-as-you-go pension systems so as to improve their transparency and solvency. This is in line with the trend seen in some developed countries of trying to introduce actuarial analysis methodology into the field of public pay-as-you-go pension system management. The paper also aims to shed some light on the two main methods used by government Social Security departments to draw up the actuarial balance, focusing especially on their methodology and actuarial issues. The main conclusion reached is that making it mandatory for the actuarial balance to be drawn up every year would force politicians to be a lot more careful about what they say and encourage them to avoid the use of populism in pensions. Contributors and pensioners, on the other hand, would have a reliable way of measuring to what degree the promises made to them regarding payment of their pensions are actually kept

Keywords: Actuarial Balance, PayG, Pensions

JEL Classifications: H55, J26, M49

Working Paper Series