European Commission Seminar

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s Towards an equitable and sustainable pension system: Lessons from the Belgian case Frank Vandenbroucke University of Amsterdam Chair Academic Council on Pension Policy European Commission Seminar Brussels 21 September 2017 The paper that is presented describes ‘points system’ has been proposed by BelgianCommission for Reform 2020-2040 Intragenerational equity can be realised in a flexible transparent way through allocation points within cohort intergenerational distribution determined fixing value point newly retired sustainability parameter actual retirees links future pensions to average living standard population employment This implies credible promises made younger contributing generations To keep system economically we propose automatic adjustment mechanism which key role played career length implements Musgrave rule stating ratio over labour earnings net contributions should remain constant induces balanced burden demographic economic shocks different cohorts seen as risk sharing • First report: June 2014 Additional report flexibility part-time strenuous work www pensioen2040 belgie pension2040 belgique New Federal Government (Ch Michel): sept Statutory age: 67 2030 w r t specific advantages civil servants’ Creation ‘National Committee’ ‘Knowledge Centre’ ‘Academic Council’ 160 28 140 26 120 24 100 22 80 20 60 40 18 16 0 14 2015 2020 2025 2035 2040 2045 2050 2055 2060 Old age dependency EU Total Life expectancy at 65 12 10 8 6 4 2 2013 Impact (no change coverage benefit market ratio) forecast (incl interaction) with impact + Change ratios incl private ( ) 70 50 30 Benefit Pensions = managing uncertainty – integrating mechanisms Commission: indexing parameters systems longevity (e g requirements & retirement age) Options Pay-as-you-go budgetary equilibrium: ???????????????? ????????????????A P pension; B number retirees; A employed population; S wage; ???????? contribution rate Dependency ???????? ???????? ???????? Hence: ????????D π (gross) ???????? ???????? ???????? Therefore: ???????????????? ???????????????? − ???????????????? Risk sharing: (1 ????????) −???????? stabilise i e hence fix (1−????????)????????̅ ???????? ‘Musgrave ratio’ or equivalently fix: (1−????????) implies: ???????? DC DB compared does not per se determine selection unique policy What desirable level ????????? Normative views consumption versus leisure time life cycle… (D) exogenous: mediated behavioural changes ‘reference career’ rule’ must complemented socially optimal retirement: when increases Plausible principle: expected period (starting minimum retirement) fixed share adult => years gained divided proportionally working periods linked if successfully applied stabilisation D ‘working longer’ Differentiation according nature Changes expectancy: priority conditional behaviour new (old) affected Other (baby-boom structural rate…) both gross between old retirees: ‘sustainability coefficient’ introduces correction factor wage indexation equal reference replacement year activity (or change) Flexibility choice Longevity stratified: corrections anticipation/postponement basis rather than physical Technique: definition individual ‘normal retirement’: (individual) started (uniform) Window around retirement’ (simplified): ???????????????????????????????? ???????????????????????????????????????????????????????????????????????????????? ???????????????????????????????????????????????? ???????????????????????? ???????????????? ???????????????????????????????????????????????????????????????????????????????? ???????????????????????????????????????????????? ‘Conditional certainty’ citizen stabilize ???????????????????????????????????????????????????????? ???????????????????????? ???????????????????????????????????????????????????????? ???????????????????????????????????????????????? ???????????????????????????????????????????????? ???????????????????????????????????????????????????????????????????????????????? (Musgrave rule) promise rates context collective response it Transparency justice (within generations): during Intergenerational (across Flexible ‘partial’ Family dimension splitting claims divorce) Strenuous jobs (number points) x (value point) (actuarial corrections) (indexation income growth) Number <= (contributory non-contributory elements are possible; jobs) Value ≈ f (average employed) Premised ‘standard worker’ career’; takes into account demography etc reference’ Positive / negative (career) given social stratification entry healthy Indexation (growth real incomes) coefficient Two objectives: Target pensioners/employed Stabilisation earned Postponing (flexibility but !) ‘Alternative’ funding (tax shift) Why funding? diversification Law Supplementary 2003 ‘Democratization’ supplementary Sector approach: SME Embedded dialogue Mobility Problem guaranteed minimal return Requires large consensus Based sense common purpose: defined ambition Ageing Report Economy 3/2015 Schokkaert Devolder Hindriks proposal reform Belgium Discussion Paper Series 17 03 Department Economics KULeuven February Réforme des légales: le système de à Regards Economiques numéro 130 Mars Het pensioen op punten: naar een nieuw sociaal contract tussen jongeren en ouderen Leuvense Economische Standpunten 2017/162 Faculteit Economie Bedrijfswetenschappen frankvandenbroucke uva nl