/
Social and Cultural Policy (/current-publication/152-social-and-cultural-policy) József Banyár
The Problems Underlying the Pension Scheme and Low Birth Rates Can Only Be Resolved
Together – A Complex Proposal for Linking Pensions to Parenting
Civic Re view, Vol. 15, Spe cial Issue, 2019, 289–300, 10.24307/psz.2020.0216 (https://doi.org/10.24307/psz.2020.0216)
Dr József Banyár, As so ci ate Pro fessor, Corvinus Uni versity of Bud apest (jozsef. banyar@ uni-corvinus. hu (mailto:jozsef.banyar@uni-corvinus.hu)).
Sum mary
This study provides a brief out line of a pen sion scheme based on human cap ital, an idea that stems from un der stand ing that pay-as-you-go (PAYG) pen sion schemes should be based on the re cog ni tion of par ent ‐ ing, as they dis trib ute the yield of in vest ments into human cap ital. The fact that this is not the case ex ‐ plains the nu mer ous prob lems in her ent the scheme. Sim il arly to a Ponzi scheme, the prom ises and op tions offered by the pen sion scheme are in creas ingly di ver gent: prom ises are be com ing in creas ingly in flated, while op tions are di min ish ing. The sys tem out lined below would re solve these prob lems. Par ent ing and the pen sion scheme are in trins ic ally in ter re lated: the former can only be made eco nom ic ally prof it able through the lat ter, as evid enced by the pre vail ing method ap plied throughout most of global his tory, which was only made re dund ant in mod ern times.
Journal of Eco nomic Lit er at ure (JEL) codes: H55, J11, J18
Keywords: pay-as-you-go pen sion scheme, human cap ital, cap it al ised pen sion scheme, pen sion re form
In tro duc tion
In Hun gary – and gen er ally in the de veloped parts of the world – the in creas ing dif fi culty in sus tain ing state pay-as-you-go (PAYG) pen sion schemes (Bajkó et. al., 2015; Berki et al., 2016; Ok sanen, 2003;
Varga, 2014) and the fail ure of total fer til ity rates (TFR), which have been low for sev eral dec ades, to re ‐ pro duce the pop u la tion are among the most ser i ous eco nomic and so cial prob lems. Al though it is clear that the former cor rel ates with the lat ter (be cause the emer gence of new gen er a tions of con tri bu tion pay ers in ad equate num bers, i.e. a sig ni fic antly higher TFR than the cur rent rate is es sen tial for sus tain ing the pen ‐ sion scheme, oth er wise a bal ance can only be achieved by a sub stan tial in crease in the re tire ment age – see Németh et al., 2019), many are un aware of a re verse cor rel a tion: the es sen tially flawed state pay-as- you-go pen sion scheme is (one of) the cause(s) for low fer til ity (al though this as pect has been dis cussed by sev eral au thors, e.g. Mészáros, 2005; Gál, 2003).
The pay-as-you-go pen sion scheme, in tro duced by Pres id ent Roosevelt at the turn of the 1930s and 1940s, and then un der pinned in 1958 by Samuel son by an “of fi cial ideo logy” (Samuel son, 1958), is based on flawed the or et ical found a tions, as I have poin ted out in sev eral of my stud ies (Banyár, 2014a; 2016; 2017;
2019b; 2019c). The es sence of the prob lem with the pay-as-you-go pen sion scheme is that the be ne fits of pop u la tion growth are dis trib uted without re gard to the per sons who have made the ef forts to achieve the res ults, and hence an ad equate level of con tri bu tion pay ment ca pa city is not en cour aged. Due to the in cor ‐ rect dis tri bu tion prin ciple (en ti tle ment based on con tri bu tion pay ment his tory), the asset and li ab il ity sides
/
of the sys tem di verge just as in Ponzi schemes (Banyár, 2019a). Moreover, in the ab sence of aware ness of the need for in vest ment into the human cap ital that forms the basis of the sys tem, the in vest ment falls short of the needs, as mani fest in the low TFR.
The need to in cor por ate the re cog ni tion of human cap ital in vest ment in the sys tem was real ised by Pál Demény as early as 1987 (Demény, 1987), al though he offered an over sim pli fied, in com plete solu tion to the prob lem. Sev eral au thors have shared his ap proach (see pub lic a tions of Kovács (ed.), 2012; Giday and Szegő, 2018), and some have at temp ted to provide a more com pre hens ive solu tion (Botos and Botos, 2011; 2012; Botos, 2018; Banyár et al., 2016), but in these at tempts a good dia gnosis was fol lowed by a the or et ic ally in co her ent pro posal for a rem edy. Below is an out line of a concept for a pen sion re form that leads the pay-as-you-go pen sion scheme back to its the or et ical found a tion, i.e. in vest ment into the human cap ital. The res ult is an auto mat ic ally bal anced pen sion scheme that is sus tain able in the long term, fully re cog nises the ef forts of par ent ing and en cour ages par ent ing. The solu tion is a genu inely un ortho dox concept that – based on ex per i ence – may ini tially shock the reader. It comes as no sur prise that so far only Czech au thors (Hyzl et al., 2005) have put for ward a sim ilar pro posal, as the logic of the cur rent pen ‐ sion scheme is so deeply in grained in people’s minds that it is dif fi cult to break through these con straints even for those who un der stand the prob lem.
In this study, it is ar gued that par ent ing should not only be the found a tion of the pen sion scheme, but the re verse cor rel a tion also ap plies: the “eco nom ics” of par ent ing is linked to the pen sion scheme in mul tiple ways.
It is also im port ant to note – as a cause for op tim ism – that in its out stand ing the com pet it ive ness pro ‐ gramme, the Na tional Bank of Hun gary (MNB, 2019) cor rectly re cog nised that both the pen sion scheme re ‐ form and a demo graphic change are of key sig ni fic ance in Hun gary’s com pet it ive ness, and these two factors are closely re lated, and so the pro gramme pro poses re cog ni tion of par ent ing in the pen sion scheme. As, however, the above-ref er enced pro posal re mains sketchy, the fol low ing pro posal may be re ‐ ferred to the de cision-makers.
A brief pro posal for a pos sible human cap ital (hc) based pen sion scheme
I pro pose a gradual re place ment of the cur rent PAYG sys tem with the HC sys tem within the time frame of 15–20 years. This could be im ple men ted by trans fer ring every one below a given age – e.g. people aged 40–45 – to the HC sys tem, while those aged over 60 would re main in the cur rent PAYG sys tem. People of a trans ition age would be trans ferred to a mixed sys tem, de pend ing on the scheme they are closer to, based on their age, i.e. their pen sion would be de term ined on the basis of partly the former and partly the new prin ciples.
Prin ciples of the new HC sys tem:
a) For this reason people with no chil dren would also be en titled to a cer tain amount of pen sion in pro por ‐ tion to their tax pay ments. The amount pay able per tax payer is cal cu lated on the basis of the por tion of par ent ing fin anced from taxes (30%) and the ratio of tax pay ers to chil dren.
b) After the re tire ment age, child less tax pay ers should not be paid sig ni fic antly less pen sion than those with chil dren, but would re ceive the same pen sion from a sig ni fic antly higher re tire ment age.
1
Pen sion is based ex clus ively on the in vest ment of human cap ital in chil dren (based on the hid den, but un re cog nised logic of the PAYG sys tem).
Ac cord ingly, en ti tle ment is not based on con tri bu tion pay ment, however, pay ment is man dat ory. The reason is that con tri bu tion does not con sti tute the pay ment side, but the re turn side of the in vest ‐ ment; this is how people repay the costs of their own up bring ing. Con tri bu tion pay ment is there fore man dat ory for every one (also for people rais ing chil dren), but it is lim ited in time (e.g. for 30 years, prefer ably for the “best” 30 years, i.e. not from the date of entry to the la bour mar ket).
Par ent ing ef forts are mainly, but not ex clus ively, made by par ents. Based on cal cu la tions, in Hun gary they cur rently con trib ute more than 70%, while the re main ing 30% is fin anced by tax pay ers through school edu ca tion, child care al low ance, child care be ne fits etc.
2
/
A scheme based on the above prin ciples has the fol low ing ad vant ages:
It is im port ant to em phas ise that only this solu tion provides both an in cent ive for par ent ing at an ad equate level and the sus tain ab il ity of the pen sion scheme, that is, con trary to pub lic opin ion, these two mat ters closely cor rel ate and de mand a com bined solu tion.
Brief jus ti fic a tion for the pro posal
Why is it ne ces sary to link hav ing chil dren with the pen sion scheme?
It has been clear for some time that, al though the two ques tions seem to be de tached be cause they are re lated to dif fer ent stages of human life, they are ac tu ally closely re lated. Over all, there are two major groups of pen sion schemes:
1) State schemes, also called pay-as-you-go schemes, not cap it al ised by “phys ical” cap ital (this is the pre ‐ vail ing pen sion scheme in Hun gary).
2) Vari ous cap it al ised schemes (pen sion funds, re tire ment funds, oc cu pa tional pen sion schemes, cap it al ‐ ised state schemes, as his tor ical Bis marck’s scheme).
Ac cord ing to the of fi cial ideo logy of the state scheme, as defined by Samuel son in 1958 (which has been con sist ently cited ap prov ingly), the yields gen er ated by pop u la tion growth are dis trib uted among the eld ‐ erly in the form of a “bio lo gical in terest”, i.e. per form ance and op tions dir ectly de pend on the num ber of births. If there are no births, no pen sions are paid. This de pend ence is re versed in cap it al ised schemes:
Child less people would, however, also re ceive a pen sion between the stand ard re tire ment age (set for people with chil dren) and the in creased one (set for child less people) based on their sav ings. The scheme also in cludes a pen sion sav ings ac count to which every body makes pay ments from the time of entry to the la bour mar ket. On this ac count money saved due to the ab sence of par ent ing is held.
When the per son reaches the re tire ment age, he/she does not yet re ceive a pen sion from the HC sys ‐ tem, but he/she may start with draw ing amounts from the sav ings ac count dis trib uted in time until the in creased re tire ment age (or he may save these amounts), i.e. a child less per son may also re tire when a per son with chil dren re tires.
If someone has a child (whether de livered or ad op ted), such sav ings are re duced by half, and after the second child they are re duced to zero. In other words, funds are im me di ately avail able for people with chil dren for par ent ing. This also means that hav ing chil dren for them will also be fin an cially neut ‐ ral when the child is born; the “in vest ment” will not only be re covered at the time of re tire ment.
Young people will there fore be no longer en cour aged to not have (or never have) chil dren (cur rently this op tion is fin an cially more ad vant age ous for them).
The state pen sion scheme will be sus tain able (as op posed to the cur rent state scheme), it will provide in cent ives (i.e. en cour age ment of human cap ital in vest ment into chil dren = hav ing chil dren) that sup ‐ port sus tain ab il ity. (If, nev er the less, no one wants to have chil dren, no prob lem is en countered be ‐ cause no pen sion en ti tle ment arises.) In other words, this sys tem im ple ments in teg ra tion between the asset and li ab il ity side of the state pen sion sys tem, which is cur rently lack ing, as the present sys tem (glob ally) is in cor rect and the or et ic ally flawed in prom ising pen sions de tached from pos sib il it ies.
In con trast to the present sys tem, where not hav ing chil dren is clearly fin an cially ad vant age ous (and pro foundly un fair to those hav ing chil dren), this sys tem will be neut ral in terms of hav ing or not hav ‐ ing chil dren, and fair ness is ap plied uni ver sally). A child less per son can not ex haust the amounts saved (at the mo ment a short-sighted ap proach is ap plied) be cause he/she needs to save. For this reason, people hav ing chil dren im me di ately earn in come for par ent ing from the amount they are no longer re ‐ quired to save on ac count of not hav ing chil dren.
Hav ing chil dren will there fore be based on the reas on able eco nomic premise that its cost will ul ti ‐ mately be borne by the child, i.e. the per son who has re ceived from so ci ety and from his/her par ents the trans fers which cre ate the human cap ital he/she pos sesses and uses, and this amount can gen er ‐ ate sig ni fic antly higher value, primar ily to the be ne fit of the child. In other words, par ent ing (in a pos ‐ it ive case: pop u la tion growth) will be come self-fin an cing.
/
cap ital ac cu mu lated for pen sions gen er ates a yield only if it is op er ated by someone, i.e. a new gen er a tion of an ad equate num ber (and qual ity) of people re places the old one, oth er wise cap ital is de pre ci ated and will not be come pen sion (al though this cor rel a tion is often dis puted).
A major flaw of the state pen sion scheme is its ori ginal as sump tion of a con stant level of births and a con ‐ stant sup ply of “bio lo gical in terest” to dis trib ute. A neg li gible, min imum cost of par ent ing is as sumed, with prac tic ally no obstacles to hav ing chil dren. Today it is clear that neither as sump tion is true (al though these as sump tions had been rel ev ant at a given time): the costs of par ent ing are on the rise, with the avail ab il ity of ef fect ive and cheap, widely ap plied con tra cept ives to every body.
It fol lows that it is wrong to as sume a con stant source of dis tri bu tion and to ig nore amounts each mem ber of so ci ety con trib utes to par ent ing. The above real isa tion prompts vari ous pro pos als and solu tions for link ‐ ing par ent ing and pen sions. These pro pos als can be di vided into three main groups:
1) A por tion of pen sion con tri bu tions paid by chil dren should be dir ectly dis trib uted back to their par ents (Demény, 1987; Giday and Szegő, 2018; pro posal con tained in point 330 of the MNB, 2019).
2) Par ent ing should ALSO be con sidered a con tri bu tion pay ment, en tail ing pen sion en ti tle ment (Botos and Botos, 2011; 2012; Werd ing, 2014; Banyár et al., 2016).
3) Com plex re la tion ship between par ent ing and pen sions (Hyzl et al., 2005; Banyár, 2014a; 2016; 2017;
2019b; 2019c).
This study dis cusses the lat ter pro posal, demon strat ing why the other pro pos als are de fi cient and, to a cer ‐ tain ex tent, the or et ic ally flawed.
Who should pay the cost of par ent ing?
The first ques tion to be reas on ably asked is: Who should pay the cost of par ent ing? Such cost used to be low, and today the situ ation is no dif fer ent in ex tremely poor groups of so ci ety and in pop u la tions in coun ‐ tries on a sim ilar level of de vel op ment. Chil dren brought up at such low cost, however, do not re ceive im ‐ pulses dur ing their child hood that would render them com pet ent for in teg ra tion in mod ern work or gan isa ‐ tions and for per form ing use ful work. (This is one of the main reas ons why mi grants from poor coun tries do not offer a solu tion to the demo graphic prob lems of the West. For cor rel a tions between mi gra tion and the pen sion scheme, see Banyár, 2014b.) For such chil dren to be come com pet ent, they need to be schooled for a long time and to be ex posed to a mul ti tude of di verse – and, of course, costly – im pulses.
These ef forts con sume vast amounts of money (and time de voted by par ents and teach ers, which ul ti ‐ mately also trans late into money). Who should pay this vast amount of money? Let us con sider the lo gical op tions.
Should par ents pay?
This has been the case for a long time, lo gic ally and un prob lem at ic ally, as chil dren worked on fam ily farms from an early age, i.e. the par ent ing in vest ment re covered early. Moreover, when the child took over the fam ily farm from his par ents, he re paid the cost of par ent ing by tak ing care of the eld erly par ents. This is the case in many de vel op ing coun tries, which is (also) why there are many chil dren there.
Today the situ ation is dif fer ent in de veloped coun tries: chil dren do not rep res ent any eco nomic be ne fits for par ents, child la bour has been banned for a long time (and fam ily farms no longer exist), but the time and cost of edu ca tion have sig ni fic antly in creased. The main eco nomic be ne fit of chil dren – their tax and con tri ‐ bu tion pay ment ca pa city – has be come a pub lic good (pre sum ably due to the flawed state pen sion
scheme), i.e. people are not re paid such be ne fits in pro por tion to their in vest ment. So why bother be com ‐ ing a par ent? The prin ciple, which has proven to work well for mil len nia and is still ad voc ated by many today, has clearly be come out dated.
Should the state pay?
Fin an cing by the state would seem a lo gical re sponse to the above prob lem, i.e. tax pay ers should raise the money for the cost of bring ing up chil dren. This solu tion has been partly im ple men ted in many coun tries, as the state fin ances edu ca tion al most every where, provid ing par ent ing be ne fits or tax be ne fits in many coun tries. Under the cur rent policy of the Hun garian state, the share in fin an cing par ent ing from pub lic funds in being in creased (cur rently it is ap prox im ately 30%). A 100% ratio of state fin an cing, however, is in feas ible, tak ing into ac count the di versity of in di vidual par ent ing costs, not to men tion the fact that this would re quire con sid er able ad di tional funds com pared to the cur rent volume of the pen sion scheme. As an ad di tional prob lem, it is not clear as to why the costs of par ent ing should be dis trib uted among tax pay ers, that is, why the cost of na tional demo graphic re pro duc tion should be ul ti mately in pro por tion to the bur den
/
shar ing ca pa city of in di vidual tax pay ers, as they do not re ceive the be ne fits of par ent ing to such an ex tent.
Bey ond doubt, the most im port ant and ul ti mate be ne fi ciary of par ent ing, however, is the child, as – in eco ‐ nomic terms – the pur pose of par ent ing is the cre ation of human cap ital for the owner (i.e. the grown child) to gen er ate vast amounts of in come primar ily for him-self/her self. It is there fore lo gical that the cost of par ent ing should be paid by the grown child.
Pay ing by the grown child
This is the sole lo gical re sponse to the prob lem. Ob vi ously, the child is un able to im me di ately make re pay ‐ ments. This is only pos sible when he/she can op er ate his/her human cap ital at least on a basic level, i.e.
after the com ple tion of edu ca tion. There fore the money and time spent on the child is deemed to be a long-term in vest ment made primar ily by the par ents (or care givers, whether or not they are the bio lo gical par ents) and partly by other tax pay ers through fund ing school edu ca tion, health care etc., in clud ing tax trans fers and tax be ne fits provided to par ents.
If the child pays for the cost of his/her up bring ing (sub sequently, when he/she can work and earn in ‐ come), pay ing it spe cific ally to those who have made the in vest ment, the prob lem of par ent ing not being reas on able on an in di vidual level is re solved by be com ing eco nom ic ally reas on able again. Moreover, re turn on the in vest ment is sig ni fic antly greater than what the state can provide by in creas ing be ne fits in re la tion to chil dren, i.e. the in cent ive for par ent ing would be greater than ever thought pos sible.
Since the child is able to pay for his/her up bring ing only at a later stage in life, when his/her par ents have already been re tired, prac tic ally the only op tion is re pay ment in the form of a pen sion, i.e. the means of the child’s re pay ment of the costs of his/her up bring ing would be the pay ment of a pen sion con tri bu tion, while the pen sion would con sti tute the re turn on the in vest ment of human cap ital (re turn of cap ital and its yields) to the par ents (and tax pay ers).
Pen sions and demo graphy – in sep ar ably cor rel ated
The above method would provide a com mon solu tion to the prob lem of both demo graphy (low birth rates) and pen sions (in creas ing sup por ted-sup porter ratio). In es sence, re l at ive to the cur rent situ ation, a vast amount of new funds would be in ves ted in par ent ing, where a por tion of the in come of people with no chil ‐ dren would be re chan nelled to their pen sions (through a sav ings plan) and the pen sion funds thereby re ‐ leased would be provided to those with chil dren. Since, however, people with chil dren would not be re ‐ quired to par ti cip ate in the sav ings plan (be cause they would also re ceive a pen sion through their chil ‐ dren), this money would be im me di ately avail able to them when they have chil dren, i.e. child less people would no longer be clearly bet ter off than those with chil dren. (The ob ject ive an nounced by the Prime Min ‐ is ter of Hun gary in the middle of 2019, namely that people with chil dren should be bet ter off than people without chil dren, could be achieved by the means de scribed above.)
It is also im port ant to em phas ise that in the de scribed solu tion, par ent ing and the pen sion scheme are not linked by some kind of a magic trick, as the two closely cor rel ate, and es sen tially the two prob lems can only be re solved to gether.
Let us ex am ine the reas ons for this. Let us as sume that it is pos sible to find in de pend ent solu tions for the pen sion scheme and for par ent ing, as al most every body be lieves to be the case today. This would imply the fol low ing.
A solu tion to the pen sion prob lem in de pend ently from par ent ing wor sens the demo graphic situ ation If the state pen sion scheme does not re ward par ent ing, the cur rent demo graphic prob lem will per sist, with in creas ing de cline in the num ber of chil dren and a de teri or at ing ratio of sup por ted to sup port ers. It is there fore ne ces sary to in cre ment ally in crease the re tire ment age, not only by “nat ural means”, i.e. through in creas ing life ex pect ancy, but also by main tain ing the ex pec ted value of the time spent in re tire ment at a con stant level. In other words, life ex pect ancy spent in re tire ment will con stantly de cline. The spon tan eous re ac tion of stake hold ers to this is the spon tan eous par tial cap it al isa tion of the pen sion scheme, which they are already en cour aged to do by life in sur ance com pan ies and pen sion funds. This means that they save an in creas ing part of their in come in stead of spend ing it on con sump tion. As the most ex pedi ent solu tion, they will sup ple ment such funds with those al loc ated to their largest un pro duct ive ex pendit ure: par ent ing, i.e. due to sav ings, they will in creas ingly re duce their par ent ing ef forts, as the cost of par ent ing will con ‐ tinue to in crease without any eco nomic be ne fits (Banyár, 2019a).
The situ ation is no bet ter if re cap it al isa tion is not im ple men ted spon tan eously, but on a man dat ory basis, through a re cap it al ised state scheme, as shown by the at tempts made in Hun gary between 1998 and 2011. In other words, the (par tial) re cap it al isa tion of the pen sion scheme fur ther de teri or ates demo graphy.
/
The state pen sion scheme clearly de pends on par ent ing
Let us as sume that the state in creases sup port to par ent ing, and even tu ally the state cov ers all the par ent ‐ ing ex pendit ures (in my opin ion this is im possible in prac tice). In this case chil dren can de facto be con ‐ sidered a pub lic good, as their up bring ing will ac tu ally be come the out come of pub lic ef fort. The ques tion arises as to whether the cur rent state pen sion scheme can op er ate as it is, on the (cur rently false) premise that the child is a pub lic good?
Clearly it could not op er ate in its cur rent form be cause the ac cu mu lated pen sion con tri bu tion would only match the num ber of births and the level of chil dren’s up bring ing. These is sues will con tinue to be un re ‐ lated to each other or to the pen sion con tri bu tions of the work ing-age pop u la tion paid dur ing work ing age.
In other words, the pen sion de term in a tion prin ciple of the state pen sion scheme – as sum ing the de pend ‐ ence of pen sions on the level pen sion con tri bu tions – re mains in cor rect. As a min imum, a rule would need to be ad op ted about the dis tri bu tion of the ac tu ally paid-up pen sion con tri bu tions (de pend ing on demo ‐ graphy) at a cer tain ratio (e.g. in pro por tion to con tri bu tions). Thus the cur rent pen sion scheme should be re formed to allow for the ag greg ate ef fect of par ent ing.
The man ner of link ing the two is cru cial. Par ent ing is NOT con tri bu tion pay ment
If, however, the two areas are de vised in a con tin gent struc ture, i.e. pen sions de pend on par ent ing ef forts, it may seem that only in di vidual re search ing cre ativ ity poses an obstacle to link ing of the two. The op tions men tioned at the be gin ning of this study may arise, like trans fer ring part of the pen sion con tri bu tion to par ents or re ward ing par ent ing ef forts by re cog nised them also as con tri bu tion pay ments.
The prob lem with these con cepts is that they con sider the state pen sion scheme as ap pro pri ate in the sense that con tri bu tion pay ment cre ates the en ti tle ment to a pen sion. This, however, is a con cep tual flaw in the cur rent state pen sion scheme, as con tri bu tion pay ments presently have noth ing to do with the amount of pen sions pay able to fu ture pen sion ers. The cor rect ap proach should be for con tri bu tion pay ‐ ment to be the re pay ment of par ent ing costs every body owes to their par ents and other tax pay ers of so ci ‐ ety, for which noth ing is due in ex change. In other words, con tri bu tion pay ment is not a pay ment but a re ‐ pay ment in this sys tem, and due to false ana lo gies (it has been com pared to fun ded pen sion schemes op ‐ er ated by in surers), this fact has not been real ised so far. For this reason the severe as set-li ab il ity match ‐ ing prob lem en countered in the state pen sion scheme would not be re solved, were this prin ciple main ‐ tained un changed, as put for ward by the cited pro pos als.
Sum mary and dif fer ences com pared to other pro pos als
In sum mary, the above-de scribed pen sion scheme sim ul tan eously man ages the prob lems of state pen sion schemes in de veloped coun tries and the demo graphic prob lems of these coun tries, and also im plies that the two prob lems are in fact closely cor rel ated. In terms of the pen sion scheme:
In terms of demo graphy:
It matches the prom ises held out (“li ab il it ies”) and the as sets avail able in the scheme, and thereby.
Elim in ates im pli cit gov ern ment debt un der ly ing the pen sion scheme (which es sen tially meas ures the un se cured prom ises in her ent in the scheme and amount ing to ap prox im ately 240% of the GDP in Hun gary).
The sys tem will be bal anced at all times in de pend ently of demo graphic changes, re gard less of whether there are more or less chil dren.
As an im port ant ad vant age, it does not cost any thing; in fact, sav ings can be achieved in con trast to the cur rent situ ation, as the re defin i tion of en ti tle ments is based on an un dis put able philo sophy.
It elim in ates the largest fin an cial counter-in cent ive to hav ing chil dren, i.e. the bad pen sion scheme under the cur rent scheme.
It thereby provides a very strong in cent ive for par ent ing over the cur rent situ ation, be cause in eco ‐ nomic terms it be comes an en tirely re cov er able in vest ment, as op posed to the cur rent situ ation, when par ent ing is clearly lux ury con sump tion (from an in di vidual point of view).
/
There are other sim ul tan eous pro pos als based on Pál Demény’s idea ex plained in 1987. In sum mary, these pro pos als could be termed as “dir ect trans fer solu tions”, as they es sen tially aim to en hance the eco nomic ap peal of par ent ing by provid ing some of the child’s con tri bu tions (taxes) to the par ent after his/her re tire ‐ ment. In prin ciple these pro pos als are cor rect, as they are based – sim il arly to my pro posal – on the cor ‐ rect prin ciple that par ent ing is con sidered an in vest ment in human cap ital, the yields of which (or at least a por tion thereof) should be re turned to those who pro duce it, i.e. (mainly) to the par ents. These pro pos als, however, have major dis ad vant ages:
a) They le git im ise a pen sion scheme built on a flawed prin ciple,
b) They are vul ner able be cause they are not based on a cor rect the ory. They give the im pres sion that a
“good” pen sion scheme (i.e. the PAYG scheme) is “hacked” by in com pat ible, ran dom factors (par ent ing), and there fore major polit ical ef forts may be ex pec ted to lobby for the with drawal of this solu tion if ad op ‐ ted. For this reason its long-term in centiv ising power will be lost.
The above dis ad vant ages also char ac ter ise the re form pro pos als aimed at link ing par ent ing and the pen ‐ sion scheme, which are, however, in con sist ent (Botos and Botos, 2011; 2012; Werd ing, 2014; Banyár et al., 2016).
Notes
1. In this re gard there are scep tics who claim that al though the state’s en cour age ment of hav ing chil ‐ dren is not without ef fect, its im pact is mod er ate. See Sági et al., 2017 and Sági et al., 2018.
2. Verbal in form a tion provided by Iván Róbert Gál as an in formal sum mary of his thor ough re search in the field.
Ref er ences
Bajkó, A.; Maknics, A.; Tóth, K. and Vékás, P. (2015): A mag yar nyugdíjrend szer fen ntarthatóságáról [On the sus tain ab il ity of the Hun garian pen sion scheme]. Közgaz dasági Szemle, Vol. 152, No. 12, pp. 1229–
1257, https:// doi. org/ 10. 18414/ ksz. 2015. 12. 1229 (https://doi.org/10.18414/ksz.2015.12.1229)
Banyár, J. (2014a): Two Scen arios of the Evol u tion of Mod ern Pen sion Sys tems. Fin an cial and Eco nomic Re view, Vol. 13, No. 4, pp. 152–177, http:// english. hitelintezetiszemle. hu/ letoltes/ 7-banyar-en. pdf (http://english.hitelintezetiszemle.hu/letoltes/7-banyar-en.pdf)
Banyár, J. (2014b): Con sequences of Cross-Bor der Human Cap ital Trans fers on Na tional PAYG Sys tems. In:
Mészáros, J. (ed.): European Pen sion Sys tem: Fantasy or Real ity. Re port on the con fer ence of the Cent ral Ad min is tra tion of Na tional Pen sion In sur ance, 19th Septem ber, 2014, Bud apest.
Banyár, J. (2016): Pos sible Re forms of Pay-As-You-Go Pen sion Sys tems. European Journal of So cial Se cur ‐ ity, Vol. 18, No. 3, https:// doi. org/ 10. 1177/ 138826271601800303
(https://doi.org/10.1177/138826271601800303)
Banyár, J. (2017): Con flict or Fair Deal Between the Gen er a tions? Al tern at ive Eco nom ics for Pen sions. Re ‐ view of So ci ology of the Hun garian So ci olo gical As so ci ation, Vol. 27, No. 4, pp. 61–82.
It does so by not cost ing any thing at all; based on a smart policy, par ent ing will be come eco nom ic ally self-fin an cing; the ul ti mate fin an cer will be the grown up child him self/her self. This is ac tu ally the way to achieve the ob ject ive an nounced by the Prime Min is ter of Hun gary, namely that people bring ing up chil dren should gain a more ad vant age ous po s i tion than those with no chil dren.
In con trast to the above-de scribed HC scheme, they only prom ise a par tial re pay ment of par ent ing ef ‐ forts.
In ev it ably, dir ect trans fer solu tions can only have a sup port func tion along side the ex ist ing PAYG pen ‐ sion scheme; they are un able to re place it. This being the case, however,
As, in con trast to the HC pro posal, they main tain a de fi cient sys tem, sub stan tial ad di tional budget ary re sources are re quired.
Again, in con trast to the HC pro posal, which aims to im me di ately change the eco nomic in cent ive for people in the child-bear ing age, dir ect trans fer pro pos als aim at se cur ing wel fare for the cur rent pen ‐ sion ers, i.e. they highly in dir ectly en hance the mo tiv a tion to have chil dren (and this is im me di ately un ‐ der mined by the le git im ate con cern about the long-term sus tain ab il ity of such a scheme).
/
Banyár, J. (2019a): Itt az új nyugdíjjavaslat: mentsük meg a rend szert gyerekekkel! [Here is the new pen ‐ sion scheme pro posal: Let us save the sys tem with chil dren!] Portfolio. hu, 1 March, https:// www. portfolio.
hu/ gazdasag/ nyugdijrendszer/ itt-az-uj-nyugdijjavaslat-mentsuk-meg-a-rendszert-gyerekekkel. 315901. html (https://www.portfolio.hu/gazdasag/nyugdijrendszer/itt-az-uj-nyugdijjavaslat-mentsuk-meg-a-rendszert- gyerekekkel.315901.html)
Banyár, J. (2019b): Age ing and the Pay-As-You-Go (PAYG) Pen sion Sys tem’s As set-Li ab il ity (Mis)Match ing.
In: Tom czyk, Ł. and Klim czuk, A. (eds.): Between Suc cess ful and Un suc cess ful Age ing: Se lec ted As pects and Con texts (163–206). Uni wer sytet Ped ago giczny w Krakowie, Kraków, https:// doi. org/ 10. 24917/
9788395373718. 7 (https://doi.org/10.24917/9788395373718.7)
Banyár, J. (2019c): The In her ent Faults of the State Pen sion Sys tem and the Main Dir ec tion of its Im prove ‐ ment. Pub lic Fin ance Quarterly, Vol. 64, No. 4, https:// doi. org/ 10. 35551/ PFQ_ 2019_ 4_ 4
(https://doi.org/10.35551/PFQ_2019_4_4)
Banyár, J.; Gál, I. R. and Mészáros, J. (2016): Egy gy er meknevelés-függő nyugdíjrend szer körvon alai [Out ‐ line of a pen sion scheme de pend ent on par ent ing]. In: Si monovits 70. Társada lom- és termész ettu dományi írások Arkhimédésztől az időskori jövedel mekig [Si monovits 70. Works of so cial and nat ural sci ences. From Archimedes to re tire ment in come]. MTA KRTK Közgaz daság-tu dományi Intézet, Bud apest, http:// econ.
core. hu/ file/ download/ Simonovits70/ 10_ Banyar-Gal. pdf
(http://econ.core.hu/file/download/Simonovits70/10_Banyar-Gal.pdf)
Berki, T.; Pa lo tai, D. and Reiff, Á. (2016): A következő 20 évben nincs gond a mag yar nyugdíjrend szer fen ‐ ntarthatóságával [No prob lems in the sus tain ab il ity of the Hun garian pen sion scheme in the next 20 years].
https:// www. mnb. hu/ kiadvanyok/ szakmai-cikkek/ tovabbi-szakmai-cikkek/ berki-tamas-palotai-daniel-reiff- adam-a-kovetkezo-husz-evben-nincs-gond-a-magyar-nyugdijrendszer-fenntarthatosagaval
(https://www.mnb.hu/kiadvanyok/szakmai-cikkek/tovabbi-szakmai-cikkek/berki-tamas-palotai-daniel-reiff- adam-a-kovetkezo-husz-evben-nincs-gond-a-magyar-nyugdijrendszer-fenntarthatosagaval)
Botos, K. and Botos, J. (2011): A Pos sible Solu tion to the Re form of the Man dat ory Pen sion Sys tem: Point Sys tem and Demo graphy. Pub lic Fin ance Quarterly, Vol. 56, No. 2, pp. 159–168, https:// www.
penzugyiszemle. hu/ pfq/ upload/ pdf/ penzugyi_ szemle_ angol/ volume_ LVI_ 20112/ a159168botosj. pdf
(https://www.penzugyiszemle.hu/pfq/upload/pdf/penzugyi_szemle_angol/volume_LVI_20112/a159168botosj.pdf) Botos, K. and Botos, J. (2012): A nyugdíjre form alapkérdései [Ba sics of pen sion re form]. Pénzügyi Szemle
On line, Vitafórum.
Botos, K. (2018): A demográfia ko moly kihívás [Demo graphy is a major chal lenge]. Mag yar Idők, 24 April, https:// magyaridok. hu/ velemeny/ a-demografia-komoly-kihivas-3028111/
(https://magyaridok.hu/velemeny/a-demografia-komoly-kihivas-3028111/) (ac cessed 4 June 2018).
Demény, P. (1987): Re-link ing Fer til ity Be ha vior and Eco nomic Se cur ity in Old Age: A Prona t al ist Re form.
Pop u la tion and De vel op ment Re view, Vol. 13, No. 1, pp. 128–132, https:// doi. org/ 10. 2307/ 1972124 (https://doi.org/10.2307/1972124)
Gál, I. R. (2003): A nyugdíjrend szer termékenységi hatásai. Vizsgálati módszerek és nemz etközi kutatási eredmények [Ef fects of the pen sion scheme on fer til ity. Ana lyt ical meth ods and in ter na tional re search res ‐ ults]. In: Gál, I. R. (ed.): Apák és fiúk és unokák [Fath ers, sons and grand sons]. Osiris, Bud apest, pp. 40–
50.
Giday, A. and Szegő, Sz. (2018): To wards the “Child-to-Par ent” Based Pen sion Al low ance (“C2P”). Pro posal for the Re duc tion of the Pop u la tion and the Fin ance Twin-De fi cit. Polgári Szemle/Civic Re view, Vol. 14, Spe cial Issue, pp. 302–319, https:// doi. org/ 10. 24307/ psz. 2018. 0420
(https://doi.org/10.24307/psz.2018.0420)
Hyzl, J.; Rus nok, J.; Kul havý, M. and Řezníček, T. (2005): Sus tain able Pen sion Solu tions (In nov at ive Ap ‐ proach). Work ing Paper, No. 1/2005, Skoda Auto Col lege, is. savs. cz/ dok_ server/ slozka. pl?id=1676;down ‐ load=1924 (ac cessed 31 May 2018).
Kovács, E. (ed.) (2012): Nyugdíj és gy er mekvállalás. Tan ulmánykötet [Stud ies on pen sion and hav ing chil ‐ dren]. Gon dolat Kiadó, Bud apest.
Mészáros, J. (2005): A társada lom biz tosítási nyugdíjrend szerek és a termékenység kölcsönhatása [In ter ac ‐ tion between so cial in sur ance pen sion schemes and fer til ity]. Demográfia, Vol. 48, No. 4, pp. 436–450, http:// demografia. hu/ kiadvanyokonline/ index. php/ demografia/ article/ view/ 599/ 455
(http://demografia.hu/kiadvanyokonline/index.php/demografia/article/view/599/455)
MNB (2019): Com pet it ive ness Pro gramme in 330 Points. Mag yar Nemz eti Bank, https:// www. mnb. hu/
letoltes/ compet-itiveness-programme-in-330-points. pdf (https://www.mnb.hu/letoltes/compet-itiveness- programme-in-330-points.pdf) (ac cessed 17 Oc to ber 2019).
Németh, A. O.; Németh, P. and Vékás, P. (2019): Demo graph ics, La bour Mar ket, and Pen sion Sus tain ab il ity in Hun gary. So ci ety and Eco nomy, Vol. 41, https:// doi. org/ 10. 1556/ 204. 2019. 015
(https://doi.org/10.1556/204.2019.015)
/
Ok sanen, H. (2003): A nyugdíjre formtervek a jóléti állam ok ban – öregedő népesség esetén [Pen sion-re ‐ form blue prints for wel fare states under age ing pop u la tions]. Közgaz dasági Szemle, Vol. 50, No. 7, pp.
654–670.
Samuel son, P. A. [1958]: An Exact Con sump tion-Loan Model of In terest with or without the So cial Con triv ‐ ance of Money. The Journal of Polit ical Eco nomy, Vol. 66, No. 6, pp. 467–482, https:// doi. org/ 10. 1086/
258100 (https://doi.org/10.1086/258100)
Sági, J.; Tatay, T.; Lent ner, Cs. and Neu manné Virág, I. (2017): Cer tain Ef fects of Fam ily and Home Setup Tax Be ne fits and Sub sidies. Pub lic Fin ance Quarterly, Vol. 62, No. 2, pp. 171–187.
Sági, J.; Lent ner, Cs. and Tatay, T. (2018): Fam ily Al low ance Is sues. Hun gary in Com par ison to Other Coun tries. Polgári Szemle/Civic Re view, Vol. 14, Spe cial Issue, pp. 290–301, https:// doi. org/ 10. 24307/ psz.
2018. 0419 (https://doi.org/10.24307/psz.2018.0419)
Varga, G. (2014): Demográfiai átme net, gaz dasági növekedés és a nyugdíjrend szer fen ntarthatósága [Demo graphic trans ition, eco nomic growth and sus tain ab il ity of the pen sion scheme]. Közgaz dasági Szemle, Vol. 61, No. 11, pp. 1279–1318.
Werd ing, M. (2014): Fam i lien in der Ge set z lichen Ren ten ver sicher ung. Das Um lagever fahren auf dem Prüfstand. Ber tels mann, https:// www. bertelsmann-stiftung. de/ de/ publikationen/ publikation/ did/ familien-in- der-geset-zlichen-rentenversicherung/ (https://www.bertelsmann-
stiftung.de/de/publikationen/publikation/did/familien-in-der-geset-zlichen-rentenversicherung/) (ac cessed 31 May 2018).
© 2005 – 2020 Polgári Szemle Alapítvány
