LOW FERTILITY EUROPE
Alessandro Cigno
University of Florence
June 22, 2007
Panel 3: Go Forth and Multiply–
Europe's Childless Societies
Summary
Public pension systems as currently designed reduce individual incentives to have children, and invest in their future earning capacity. This makes public pension systems, all essentially pay-as-you-go, financially unstable.
Fertility-related benefits are an incentive to have children, but a disincentive to invest in their future earning capacity. A better way to restore incentives is to make individual pension benefits contingent on the total earning capacity of the pensioner’s own children.
I propose setting up two parallel pension schemes, each one designed to break even in the long run. One is a conventional Bismarck-type scheme, where individual benefits depend on individual contributions. The other has benefits conditional on the earning capacity of the pensioner’s own children.
Couples and individuals should be free to combine the two schemes any way they like, and thus to allocate their time between earning money and producing future earning capacity in accordance with their comparative advantages.
