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

Listed author(s):
  • Erik Schokkaert
  • Pierre Devolder
  • Jean Hindriks
  • Frank Vandenbroucke

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.

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File URL: https://lirias.kuleuven.be/bitstream/123456789/573241/1/dps1703.pdf
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Paper provided by KU Leuven, Faculty of Economics and Business, Department of Economics in its series Working Papers Department of Economics with number 573241.

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Date of creation: Feb 2017
Publication status: Published in Discussion paper series, DPS17.03 pages:1-47
Handle: RePEc:ete:ceswps:573241
Contact details of provider: Web page: http://feb.kuleuven.be/Economics/

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