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Towards an equitable and sustainable points system

Listed author(s):
  • SCHOKKAERT Erik

    ()

    (KU Leuven and CORE)

  • DEVOLDER Pierre

    ()

    (Université catholique de Louvain, ISBA, Belgium)

  • HINDRIKS Jean

    ()

    (Université catholique de Louvain, CORE, Belgium)

  • VANDENBROUCKE Frank

    (Universiteit Amsterdam)

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2017006.

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Date of creation: 27 Feb 2017
Handle: RePEc:cor:louvco:2017006
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