Template-Type: ReDIF-Article 1.0
Author-Name: Gábor P. Kiss
Author-Email: kissg@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (Central Bank of Hungary)

Title: New Numerical Fiscal Rules for the Pension Balance
Abstract: At the level of the individual, the pension system is characterised by the payment of contributions and the collection of benefits,
both taking place over extended periods that are separated in time. On aggregate, in the coming decades the ageing of society
will translate into more people receiving pensions, covered by the contributions of a decreasing number of contribution payers.
In line with the EU’s fiscal framework, the fiscal rules on the general government deficit include the annual balance of pension
payments and contributions; consequently, they fail to provide a suitable incentive for decreasing longer-term imbalances.
It may be justified to exclude the pension balance from the coverage of these fiscal rules and to regulate the balance in such
a way to ensure that it is maintained over the long term. In this case, the bias for measures with immediate effects (such as an
increase in contribution rates) would be eliminated, which, given that the current regulations are focussed on the short term,
tend to overshadow other measures with long-term effects (e.g. raising the pension age). Circumvention of this flexible rule can
be avoided only if the following two conditions are met. One is the projection of the pension balance in a reliable and controlled
manner. The other is that the necessary adjustment cannot be postponed or be avoided by overestimating its effects. Efficient
operation also requires a harmonisation of national regulations and the EU’s fiscal framework. It is nevertheless important
to stress that having separate fiscal rules apply to the pension balance would not mean that the pension system could be
separately evaluated. The broader implications of cohort-specific distribution can only be assessed on the basis of on the socalled
National Transfer Accounts research project, which records inter-cohort transfers as well.

Classification-JEL: H55, H61,H68
Keywords: fiscal rules, pension balance, medium-term projections, long-term projections
Journal: MNB Bulletin
Pages: 56-65
Volume: 9
Issue: 2
Year: 2014
Month: July
File-URL: https://www.mnb.hu/letoltes/gabor-kiss.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:bullet:v:9:y:2014:i:2:p:56-65