Increased longevity and social security reform: questioning the optimality of individual accounts when education matters

In many European countries, population aging had led to debate about a switch from conventional unfunded public pension systems to notional systems characterized by individual accounts. In this article, we develop an overlapping generations model in which endogenous growth is based on an accumulation of knowledge driven by the proportion of skilled workers and by the time they have spent in training. In such a framework, we show that conventional pension systems, contrary to notional systems, can enhance economic growth by linking benefits only to the partial earnings history. Thus, to ensure economic growth, the optimal adjustment to increased longevity could consist in increasing the size of existing retirement systems rather than switching to notional systems.