Public Finance Quarterly Archive Articles

The Inherent Faults of the State Pension System and the Main Direction of its Improvement

10:57, december 12, 2019.
József Banyár
PhD, Associate Professor,
Corvinus University of Budapest

Published in: Public Finance Quarterly 2019/4. (p. 511-525.)

Summary: In my study, I took into account the design faults of the state-funded, pay-as-you-go system and realised that its principle (created in arrears) is defective, and it is necessary to move to a new operating principle to correct it. We have to forget about the existing so-called ‘unfunded’ pension system, and the state pension system shall be explicitly placed on its real basis, human capital. This results in an automatic asset/liability matching that is currently totally missing, and we can forget about the usual debates about the sustainability of the pension system. The result of such a system would probably be an increase in the number of births compared to today, but this is not the purpose of the proposed reform, which I intend to elaborate in a separate study, i.e. how this can be put into practice.

Keywords: pay-as-you-go pension system, human capital, funded pension system, pension reform

JEL codes: H55, J11, J18


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