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Pension financing and individual retirement account

Author

Listed:
  • Arno Baurin

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Jean Hindriks

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

Abstract

In this article, we analyze the Belgium pension financing in retrospect for the period 1995-2017 and then we provide a prospective analysis based on the demographic and economic projections of the Federal Plan Bureau. In the retrospective part, we point out the growing importance of alternative financing relative to the social security contributions. The decomposition of the public pension growth over the last decade between the average pension and the number of retirees shows that three quarters of the growth is due to the increase of the average pension. In the prospective part, we simulate the contributions and pension benefits required to balance the budget, based on different rules: Defined Contribution, Defined Benefit and the Musgrave rule (keeping constant the ratio of pension benefit to wage net of contributions). We then simulate pension adjustment via the "individual retirement account" (IRA) as proposed in Devolder (2019) and Devolder & Hindriks 2019). Under the IRA, the adjustment variables are the accrual rate (which determines the new pension claims) and the indexation rate (which determines the past pension claims). Combining those adjustment variables, our simulations show that it is possible to protect past pension claims and ensure budget balance on a yearly basis. We propose a rule of adjustment so as to equate, year by year, the replacement rate across retirees of different ages.

Suggested Citation

  • Arno Baurin & Jean Hindriks, 2020. "Pension financing and individual retirement account," LIDAM Discussion Papers IRES 2020002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2020002
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    References listed on IDEAS

    as
    1. Jean Hindriks & Pierre Devolder & Erik Schokkaert & Frank Vandenbroucke, 2017. "Réforme des pensions légales : le système de pension à points," Regards économiques 2017130, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Jean Hindriks & Arno Baurin, 2019. "Financement des pensions : rétrospectives et perspectives," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 97-119.
    3. Schokkaert, Erik & Devolder, Pierre & Hindriks, Jean & Vandenbroucke, Frank, 2020. "Towards an equitable and sustainable points system. A proposal for pension reform in Belgium," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(1), pages 49-79, January.
    4. Arno Baurin & Jean Hindriks, 2019. "Quels sont les métiers pénibles ?," Regards économiques 151, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Pierre Devolder & Jean Hindriks, 2018. "La pension à points : 5 principes pour plus d’équité dans les régimes de pension en Belgique," Regards économiques 139, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    More about this item

    Keywords

    social security; pension; retirement; ageing;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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