Abstract
In this article, I investigate the optimal Pareto-improving debt-financed transition from pay-as-you-go to fully funded pension systems. In particular, I examine the relationship between key parameter values and the time necessary for a Pareto-improving transition. My finding is that a more distorted economy can be reformed faster. This result gives an additional explanation for the success of the Chilean reform, where the initial pay-as-you-go system was the largest and, at the same time, the most distorting.