Towards an Equitable and Sustainable Points System: A Proposal for Pension Reform in Belgium

KU Leuven Department of Economics, Discussion Paper Series, NO DPS17.03

47 Pages Posted: 20 Mar 2017

See all articles by Erik Schokkaert

Erik Schokkaert

Catholic University of Leuven (KUL)

Pierre Devolder

Catholic University of Louvain

Jean Hindriks

University of London - School of Economics and Finance

Frank Vandenbroucke

University of Amsterdam

Multiple version iconThere are 3 versions of this paper

Date Written: February 2017

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.

Suggested Citation

Schokkaert, Erik and Devolder, Pierre and Hindriks, Jean and Vandenbroucke, Frank, Towards an Equitable and Sustainable Points System: A Proposal for Pension Reform in Belgium (February 2017). KU Leuven Department of Economics, Discussion Paper Series, NO DPS17.03, Available at SSRN: https://ssrn.com/abstract=2937576 or http://dx.doi.org/10.2139/ssrn.2937576

Erik Schokkaert (Contact Author)

Catholic University of Leuven (KUL) ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Pierre Devolder

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

Jean Hindriks

University of London - School of Economics and Finance ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7882 7807 (Phone)
+44 20 8983 3580 (Fax)

HOME PAGE: http://www.dc.eclipse.co.uk/hindriks.html

Frank Vandenbroucke

University of Amsterdam ( email )

Spui 21
Amsterdam, 1012 WX
Netherlands
+31 (0)20 525 6037 (Phone)

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