Pension systems in most industrialised countries are unfunded, i.e. they are pay-as-you-go financed and thus depend on a well-balanced ratio (old) recipients to (young) contributors. This so-called dependency ratio will worsen significantly in the next few decades due to two developments: ageing...

It is shown that the net fiscal externality created by an additional member of a Pay-as-you-go-pension system that is endowed with individual accounts equals the gross contribution of this member. In Germany, this is an amount of about DM 175,000. The paper uses this information to design a...