The Price of Solidarity Between Generations and the Optimal Model for Pension System Reform
Automatically translated summary. The full text is available in Romanian.
A study on the Republic of Moldova's public pension system examines how its pay-as-you-go model, built on solidarity between generations, is exposed to economic and demographic risks. It proposes an optimal reform model based on long-term demographic forecasts and their implications for the sustainability of the pension fund.
The current system uses contributions immediately to pay pensions. Falling employment, labour emigration and population ageing have eroded the tax base while increasing payment obligations to pensioners. Since 2009, the State Social Insurance Budget deficit has been financed through direct transfers from the state budget, which entail significant opportunity costs.
Using actuarial estimates and an inter-temporal analysis recently proposed by the IMF, the study assesses the long-term solvency of the public pension fund under five scenarios: (i) no reform; (ii) raising the retirement age; (iii) increasing the social insurance contribution rate; (iv) faster growth of the average wage and the employment rate; and (v) introducing a funded pension system (pillar 2).
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