Retirement Finance Reform

Abstract

It is argued that population aging will put severe pressure on the financing of government-sponsored pay-as-you-go retirement systems. Should tax-based financing be replaced, in whole or in part, with market-based financing? And, if so, should there be a minimum benefit guaranteed by the government? Such a guarantee raises the issue of moral hazard-that is, would individuals be protected against loss of capital, whatever their investment decisions? This article explores some of the trade-offs associated with this dilemma and suggests how to avoid it.