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Pareto-improving transition to fully funded pensions under myopia
Economics Working Papers
  • Torben M. Andersen, University of Aarhus
  • Joydeep Bhattacharya, Iowa State University
  • Marias H. Gestsson, University of Iceland
Publication Date

Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme is often described as an “original sin”: It helps the current generation of retirees but hurts future generations because they are forced to save via a return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the “paternalistically motivated forced savings” component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results informthe debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.

Version History

Original Release Date: November 2018

Department of Economics, Iowa State University
File Format
43 pages
Citation Information
Torben M. Andersen, Joydeep Bhattacharya and Marias H. Gestsson. "Pareto-improving transition to fully funded pensions under myopia" (2018)
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