Pension Systems: Principles, Debates and Analytical Errors

Abstract

Many countries face problems financing pensions in the face of population aging. There is controversy about the underlying economic theory, the extent of the problem and the best mix of policies to protect old-age security. This article sets out the economic analytics of pensions, discussing in turn their multidimensional nature, principles of analysis, the reasons why government gets involved, and debates and analytical errors. Those analytical errors matter, because they lead to policy errors. A central conclusion is that although there are sound principles of pension design, there is no single best pension system for all countries.