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Towards an equitable and sustainable points system. A proposal for pension reform in Belgium

Erik Schokkaert, Pierre Devolder, Jean Hindriks () and Frank Vandenbroucke

No 573241, Working Papers Department of Economics from KU Leuven, Faculty of Economics and Business, Department of Economics

Abstract: We describe the points system that has been proposed 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 population 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 over the different cohorts and can be seen as a transparent mechanism of intergenerational risk sharing.

New Economics Papers: this item is included in nep-age
Date: 2017-02
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Published in Discussion paper series, DPS17.03 pages:1-47

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Working Paper: Towards an equitable and sustainable points sytem. A proposal for pension reform in Belgium (2018)
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