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IPE special report May 2018

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Experts in call to scrap PAYG pension systems

EUROPE - Arun Muralidhar today presented the ideas for a global pensions reform that he prepared with the late Nobel Prize winning economist Professor Franco Modigliani.

Speaking at the PensMart Fifth European Pensions Market Forum in Frankfurt today, Muralidhar, managing director of research at FX-Concepts, presented his and Modigliani’ final proposals for a rehinking of pensions reform.

The essence of the proposed pension reforms lies in the scrapping of pay-as-you-go systems. The argument is that while many governments have introduced a privatised second pillar to address pensions issues, the result has been that pensions are in fact lower.

There are two reasons for this. First, that inexperienced individuals are being asked to make decisions about the investments they need to make for retirement. Second, that private accounts inevitably incur high fees, and, therefore, lower pensions.

The Muralidhar-Modigliani proposal is to create a two-pillar system - both of which are funded/part funded. The first pillar would be a mandatory funded defined benefit system, with a combination of public governance and private management. The second pillar would be a voluntary defined contribution system with private management.

Modigliani and Muralidhar completed a book four weeks ago, which is expected to be published in two months. Modigliani had been due to speak at PensMart but died three weeks ago.

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