A New Paradigm of the Pension System: a Behavioral Economics Perspective

The paper aims to compare the preferences of the unlimited rational economic agent for consumption and earnings, on the one hand, and real behavior of economic agents, on the other. The analysis concludes that old-age poverty appears to be a result of irrational behavior in youth and adulthood. The state pension system, which aims to solve this problem, requires a transition of the state from its redistribution function to prevention of irrational behavior of economic agents, as well as a transition from the tax distribution system to the mandatory old-age pension saving scheme, which involves sovereignty of the individual and free choice between insurance and non-insurance alternatives. The main principles of the individually funded pension system are discussed in the paper. Minimum pension fund is expected to address the critical social issue of retirement age. The problem of long-livers, who live beyond the survival age, can be solved both by additional pension contributions to the individually funded pension system (by applying survival age multiplying coefficient) and by inclusion of insurance part in the pension system. Moreover, it has been proved that insurance scheme doesn’t reproduce redistribution system for the whole society as it is limited only to those who have the right to use pension capital. The paper focuses on the political problems of the state authorities that prevent the implementation of old-age pension saving scheme. Rational behavior of economic agents is impossible without overcoming limited rational behavior of the state