Some notes on the redistribution inherent in the US public pension system

This paper assesses the redistributions implicitly generated by the US pension scheme for a varied set of career patterns and show that the US rules do not succeed in eliminating all the regressive redistribution that generally characterizes earnings-related DB schemes. The benchmark against which the US pension scheme is tested is the one-to-one contribution-benefit formula and indexation rule of the Notional Defined Contribution (NDC) scheme. The paper finally suggests that the need to raise the contribution rate to finance current obligations could go hand-in-hand with redesigning the Old-Age Insurance according to the NDC scheme. With such a design workers would perceive the higher contributions not as a tax but as an increase in their mandatory savings, which will be rewarded with the pay-as-you-go interest rate and a stream of pension annuities more generous than that it would be possible to pay at the current contribution rate.