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Many governments promise pension and medical benefits to their elderly citizens. As the world is aging, the burden of retiree benefits is becoming painfully obvious. Uncertainty about the future makes planning for retiree benefits even more difficult. Who will suffer or gain financially if the future differs from what we expect? For example, we face tremendous uncertainty about the speed of technical progress, about medical costs, and about trends in fertility and longevity. Government policy determines not only the level of taxes and benefits, but also who bears the risk of unexpected changes. Traditionally, retirement programs largely exempted retirees from sharing risk: by making fixed, unconditional, promises, they necessarily imposed a more-than-proportional risk on younger cohorts and on future generations. We examine the impact of alternative tax, pension, and health care policies on different cohorts, to evaluate how existing policies shift risk across cohorts. We also assess whether there may be conditions under which such policies might be appropriate in the interest of general welfare, and where there may be scope for better policies. The analysis covers the fundamental sources of risk: productivity, fertility, longevity, health, and assets
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All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council. Copyright 2005 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.
Date Posted: 30 August 2019