This paper analyses a model of overlapping generations in which agents who do not participate in th elabor market are unable to borrow. Thus an increase in a fully funded pension raises aggregate savings even with a fixed participation rate since private savings are not crowded out one-for-one....

The abolition or reform of unfunded pensions will generally make members of a transitional generation worse-off, because of the "double burden" of funding their own retirement along with that of paying off the unfunded pension liability. Reform will also lower the time-path of interest rates,...

The transition from unfunded pensions may impose a double burden on a transitional generation, which must both pay taxes to finance current pension liabilities and save for their own retirement. There are also economic gains which will accrue to future generations from increased rates of savings...