4.2 Impact of pensions on buying power

Without regard to the type of pension system from time to time there is a recession or trend (unfavorable demographic developments, fall in births, rise in age) which causes a situation in which real pensions are much lower than calculated.

Expected scenario:




 Recession causes fall of value of funds or lower pension contributions:




  Represents shortage of buying power due to fall of pensions that will be causing permanent fall in companies’ profits.

The question is, whether government should only accept the fact and take only preservative action or to take more proactive approach.

In continuous system there is the problem of unfavorable demographic development (the ratio between economically active persons and pensioners is going down) which is often advised to be solved by postponing the retirement age. As there is less and less workers per pensioner it seems the solution is retire later, so the pension amounts would be preserved.

In capital system it is very similar, when recession hits and value of pension funds go down its members are forced to work longer and save more years because their accumulated capital is not enough for adequate pension.

In both cases, where the solution is postponing the retirement age there are however serious side effects of such fix.