Abstract
This paper estimates changes in pensions and long-term financial sustainability of the Czech pension system in the light of population ageing, market imperfections or a potential economic downturn, and assesses feasibility of various parametric and structural reforms. To do so, it develops a bespoke OLG model with heterogeneous agents, bequests, productivity shocks, market imperfections, and realistic representation of three distinct types of pension systems calibrated using real-world data.
Numerical results are obtained through computer simulations. The estimates show that a well-designed multi-pillar pension scheme provides good results in a number of performance indicators without leading to excessive costs of transition, whereas maintaining the current PAY-GO scheme would lead to a gradual decrease in real pensions, lower pension-to-wage ratios, higher budget deficits, or any combination thereof, unless the statutory retirement age increases beyond 67 years by 2050.