Pension System Based on Sharecropping and Economic Security of Families

Thursday, July 17, 2014: 4:15 PM
Room: Booth 40
Oral Presentation
Marek KOSNY , Wroclaw University of Economics, Wroclaw, Poland
Decisions about giving birth and upbringing of children imply consent to finance the public good. These decisions are generally individually adverse from the point of view of both short- and long-term economic security of families. The way to change this appraisal is to modify the structure of the pension system. The idea of the new solution is based on the sharecropping – one of schemes of incentive system under uncertainty and information asymmetry. The concept underlying this approach assumes that parents and the state, involved in upbringing the children, share both costs and benefits, what results in sharing the risk. The main advantage of the proposed solution is a convergence of interest of the parents and the state.

The practical implementation of such a system would be based on division of pension insurance contributions, paid by a working individual, between the two pillars of the new system, in proportion to the expenditure incurred on his (her) upbringing by the state and the parents in the past. The first part would be spent on financing universal benefits, granted to all present pensioners on the basis of their contributions made in the past, during the professional activity. The second part of the contribution, the so-called second pillar, would be transferred directly to the parents of this person – increasing their pension capital (if they are still working) or in the form of direct payments (if they are already retired). Additional, capital pillar could be established to improve long-term economic security for those without children or provide an extra protection for individuals involved in the first and second pillar.

The empirical part of the analysis will be done for the pension system in Poland, in the context of its planned restructuration.