We examine the future benefits of the Israeli privatized pension system, which is considered as a model of transition to funded pension systems worldwide. This research is based on an extensive database obtained from one of the largest traditional private funds in the market. The results paint a concerning picture regarding the adequacy of benefits and quality of life in old age. Israel’s radical privatized pension model signals a warning to other nations. We show that, even with high returns, most individuals cannot handle the magnitude of financial and labor risks accumulated during their career and retirement. We recommend more balanced government intervention as well as the use of risk-sharing mechanisms such as providing minimum pension guarantee and strengthening the unfunded social security pillar.

This study enables different angel to explore central planners’ considerations regarding pension systems in a modern western market with aging influence. In particular, considerable weight has been given to the effect of the crisis due to the pandemic and frequent market turmoil. This study expands the number of players analyzed in the field and takes into consideration different interests among the current and future generations. In addition, we allow differentiation among earning cohorts. By using the overlapping generation model and Monte Carlo simulations, we find that in a wide macroeconomic range, pension equilibrium surprisingly stands with unfunded pension schemes despite the heavy aging influence. Contrary to the classic economic arguments by the World Bank and IMF that were widespread during the 1980s and 1990s, the choice of a pension system is much more complex. We find that the central planner must take into account not only the aging rhythm and market yield but also other parameters, such as the current and future utility perspective, the government’s debt price, GDP per capita growth rate, risk aversion, and the possibility of market turmoil.