Cost of reforming the National Pension System: an adaptation of the overlapping generations model

This article examines the cost of the reform of Peru’s National Pension System (SNP), focusing on an adaptation of the overlapping generations model to analyze the impact of the transition to the Private Pension System (SPP). The study addresses the crisis in the SNP, its causes, and how the reform introduced in 1992 seeks to balance pension expectations with fiscal sustainability. Using forecasts based on recognition bonds and Government Treasury bonds, the economic effects on different generations are identified, revealing that the reform is not cost-free and has both winners and losers. The methodology includes a micro-founded analysis of intergenerational trade-offs, highlighting that the cost of the reform is distributed among current and future generations. The main findings indicate that while the transition to the SPP may increase total savings in the long term, the immediate cost in terms of taxes and transfers is significant. This suggests the need for careful public policy design to mitigate adverse intergenerational effects and ensure the system’s sustainability. (Abstract and audio: Department of Economic Publications)