Towards an equitable and sustainable points system
Pierre Devolder (),
Jean Hindriks () and
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Pierre Devolder: Université catholique de Louvain, ISBA, Belgium
Frank Vandenbroucke: Universiteit Amsterdam
No 2017006, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)
We describe the points system that has been proosed by the Belgian Commission for Pension Reform 2020-2040. Intragenerational equity can be realised in a flexible and transparent way through the allocation of points within a cohort. The intergenerational distribution is determined by fixing the value of a point for the newly retired and a sustainability parameter for the actual retirees. The value of the point links future pensions to the future average living standard of the populuation in employment. This implies that credible promises can be made to the younger contributing generations. To keep the system economically sustainable, we propose an automatic adjustment mechanism, in which a key role is played by the career length. This adjustment mechanism implements the Musgrave rule by stating that the ratio of pensions over labour earnings net of pension contributions should remain constant. This induces a balanced distribution of the burden of demographic and economic shocks oveor the different cohorts and canbe seen as a transparent mechanism of intergenerational risk sharing.
Keywords: retirement; pension reform, Musgrave rule; intergenerational risk sharing (search for similar items in EconPapers)
JEL-codes: H55 I38 J18 J26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-eur and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2017006
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