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Towards an equitable and sustainable points system

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • SCHOKKAERT Erik & DEVOLDER Pierre & HINDRIKS Jean & VANDENBROUCKE Frank, 2017. "Towards an equitable and sustainable points system," LIDAM Discussion Papers CORE 2017006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2017006
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2017.html
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    Citations

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    Cited by:

    1. Gregory Ponthiere, 2020. "A theory of reverse retirement," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1618-1659, September.
    2. Al-Hassan, Hassana & Devolder, Pierre, 2022. "Stochastic Modellization of Hybrid Public Pension Plans (PAYG) under Demographic Risks with Application to the Belgian Case," LIDAM Discussion Papers ISBA 2022042, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

    More about this item

    Keywords

    retirement; pension reform; Musgrave rule; intergenerational risk sharing;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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