THE PAYG VARIANT VERSUS THE FULLY FUNDED VARIANT IN CONFIGURING AN EFFECTIVE PENSION SYSTEM

Abstract

The actual situation is characterized by a major transformation of economical structures, such as: the decrease of population, the increase of participation rate of younger people in higher education and most important, massive retirements and migration. These aspects have generated a drastic decrease in labor force and have brought imbalance in Romanian pension system. Now, the Romanian system of pensions based the principle of social solidarity (support by those who have an income now for the people who worked in the past) known as a „pay as you go” system – PAYG has demonstrated its limits, especially due to the current demographic context. This system is an un-funded one not based on economizing. On the other side, private pension systems, either obligatory or optional, are fully funded and based on process of economizing. PAYG pension systems are more vulnerable to demographic changes than pension systems base on accumulation and capitalization. This paper presents, in comparative approach, these two pension systems and corroborating them with present sociodemographic situation try to disclose whichever is more viable in ensuring sustainability of pension system from Romania.

Keywords

• social security
• sustainability
• pension systems
• demographic risk
• transition