The logical sustainability of the pension system

The sustainability of a pension system must be “logical” in type and not based on the forecasts optimism. This paper proposes a logical mathematical model to manage a pension system. An organic funded component of structural type is introduced. A very general differential-type condition is obtained under the assumption that the pension benefits are calculated according to the defined contribution scheme. A sufficient condition of easier application is also deduced. In the latter condition a control indicator is used which constitutes the natural change to the sustainability indicator, or Balance Ratio, of the Swedish pension system to make it logically based. This indicator can be decomposed into two components, one that manages the pay-as-you-go part of the pension system and the other that manages the funded part. The paper is developed in a nonsteady-state situation, which has been quite neglected in the literature.