Anchor pension policy to its core design principles

Pensions policy, at its heart, stems from paternalism. When people stop working, they stop earning, and if they haven’t saved enough, face the risk of destitution in old age. In most societies, the state feels compelled to step in with tax-payer funded cash transfers in the form of old age pensions. Over time, these commitments have expanded to cover entire populations. Yet financing the consumption of all elderly citizens through welfare transfers is fiscally unsustainable. As a result, pensions policy has focused on how to force individuals to build wealth during their working life. This coercion is justified on the grounds that people tend to underestimate their future needs, and discount the future too heavily. Assessment of pension policy, therefore, must recognise that it flows from the state’s decision to compel individuals to save for their own future consumption. The legitimacy of this coercion depends on whether it contributes towards preventing poverty in old age. This article examines pension policy from such a perspective. The design of means-tested transfers for the already impoverished elderly, while significant, is not addressed here.

CITATION

Renuka Sane, 2025. “The Leap Blog: Anchor pension policy to its core design principles,” The Leap Blog

ARTICLE