Funded Social Security System: A Review of Issues in Four East Asian Countries

Frederick Ribe

Abstract


This paper reviews the structure and economic effects of the fullyfunded centralized public pension programs in several East Asian countries. The major weaknesses of these programs are variable and often inadequate replacement rates as well as poor population coverage. Aside from encouraging development of financial markets, their chief virtue is their avoidance of economic distortions associated with the alternative pay-as-you-go approach. Growth-modeling exercises surveyed in the paper suggest that such distortions are the main way in which social security affects aggregate welfare in the long run. The paper therefore argues that expected pay-as-you-go based reforms should involve introduction of minimal flatrate schemes as supplements to the existing systems.

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