The Introduction of Partially-Funded Pension System as a Financial Institution in a 55-Period Overlapping Generations Model

During the process of economic development, economists gradually have found that in addition to factors such as technology and materials involved in the development, labor is also a special place. Therefore, labor must be supported by proper tools to continue development process along with the strengthening of both technology and materials. In addition to education and health care, social security is one of the most powerful tools for protection of human societies. Social security systems offers a variety of support services such as retirement pensions, disability and etc, so those are one of the most powerful levers of government to guide the society towards prosperity.By modifying of the Auerbach and Kotlikoff pattern (1987) and the failures of the pension system in Iran, this paper simulates the reforming of the pension system from of the Pay-As-You-Go system to the Partially-Funded one by using a 55-period overlapping generations model.The results indicated that individual’s optimal consumption-saving behavior varies under different social security systems. Our findings of the simulation model show that in addition to increasing the personal financial assets, Partially-Funded pension system provides a higher physical capital accumulation for the economy than that of ¬Pay-as-you-go pension system. In addition to higher level of national consumption, the transition to the new system provides a higher level of economic growth and national income.