Intergenerational solidarity in the uniform contribution and accrual system

Abstract

In the current uniform contribution and accrual system, all members - irrespective of their age - receive the same pension accrual for the same contribution rate. This leads to large transfers between various groups of members, which makes the pension system vulnerable. The decreasing accrual system that we have analysed, in which each member pays the same contribution rate and in return receives a decreasing accrual depending on their age, does not suffer from these transfers. However, a switch to this system may entail undesirable social effects. Compensation for insufficient pension accrual for active members - upto a maximum of 20% of the liabilities - must be taken into account.

Views expressed are those of the individual authors and do not necessarily reflect official positions of PGGM..