Abstract

In classical pension design, there are essentially two kinds of pension schemes: Defined Benefit (DB) and Defined Contribution (DC) plans. Each scheme corresponds to a different philosophy of spreading risk between the stakeholders: in a DB, the main risks are taken by the organizer of the plan, while in a DC, the affiliates must bear all the risks. Especially when applied to social security pension systems, this traditional view can in both cases lead to unfair intergenerational equilibrium. The purpose of this chapter is to present alternative architectures based on a mix between DB and DC in order to achieve both financial sustainability and social adequacy. An example of this approach is the so-called Musgrave rule, but other risk-sharing approaches will be developed in a pay-as-you-go philosophy. These principles will be illustrated by the Belgian proposition of reform of the first pillar, based on a points system with a simultaneous automatic adaptation mechanism of the retirement age, the contribution rate, the replacement rate, and the indexation rate.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.