Parental Bonus in Pension Systems: The Case of Slovakia

Abstract

Population aging and low birth rates are linked to the problem of unsustainability of ongoing pension systems. As demographic predictions follow unfavorable developments, adjusting such pension systems is inevitable. This paper discusses introducing child-related benefits into pension system models and their advantages and disadvantages. The model with child-related pension benefits dependent on the average wage is examined concerning the effects of the child factor on individual fertility and private savings. Subsequently, we estimate the size of the child factor in the current setting of Slovakia’s pension system and several other alternatives. Finally, the optimal setting of the above pension system model is presented and compared with the presented alternatives. We show that the current setting of the pension system can be brought closer to the optimum by, for example, more generous awarding of personal wage points for raising children.