This report focuses primarily on the mechanics of financing the transition from an unfunded pension scheme with equates with hidden public debt to a funded scheme which makes this debt explicit, and on the financial stocks and flows involved. Only if the problem is treated in a consistent stock/flow concept can the true costs or benefits of transition, and its economic and distributive implications be fully assessed. To this end, the structure of this report is as follows: after the introductory section, section 2 elaborates on the appropriate definition of the scope of the obligations that become explicit, the way these are measured, and how they change under reform. Section 3 presents the main strategies for reducing the debt to be made explicit. Section 4 highlights the changes in the composition of total (i.e., implicit and explicit) debt and the related fiscal requirements during the transition under alternative reforms. Section 5 presents the options to finance the transition through debt or budgetary financing.
