The next situation also neglects the ageing process. In this hypothetical situation, changes in the steady
state situation are introduced by means of a once and for all change in the contribution rate and the
public pension benefit3. The change can entail lower contribution rates (LC) or higher contribution
rates (HC) than the current rate (which equals 14% of taxable income). Because of the PAYG-system,
the public pension benefits are adjusted in the same way. The contribution rates in these two situations
are randomly determined. The new contribution rate is chosen from the interval 7% to 12% in steps
of 1% in the case of a lower rate and between 16% and 21% in the case of a higher rate. All
respondents have been informed about the effect on the average contribution. In addition, the youngest
generations have been informed about the effects on their own contribution.
In principle, in the situation with lower contribution rates (LC), young and middle-aged individuals
can spend more. However, in the questionnaire it is told that the difference between the contributions
paid in the basic situation and in the situation with lower contributions will be saved. These savings
plus the interest earned (a kind of private pension) are used as a supplement to the lower public pension
benefit that they will receive reaching the age of 65. Note that the assumption of a once-and- for-all
shock implies that the income position of the current old always deteriorates. What happens to the
future income position of the young and middle-aged individuals depends on several aspects, such as
the level of the new contribution rate, and the income and age of the respondent. The very young
individuals with high incomes and high contributions will most probably gain. The individuals have
thus been asked to trade off their own income position during old age against the income position of
the current old. Appendix B presents an example in order to illustrate the way the information has been
provided to the respondents.
In the case of an increase in the contribution rate (HC), the young and middle-aged individuals can
generally spend less. However, the respondents have been told that the difference between the higher
contributions in this situation and the contributions in the basic situation will be at the expense of the
savings account or, if one does not have such an account, the money will be borrowed. Because of
this, current consumption possibilities remain the same, but the decrease in savings is at the expense
of old-age savings. On the other hand the public pension benefit increases. In HC, the effect on the
income position of the elderly is certainly positive as they benefit from a higher pension. The effect
3The calculations of the contribution rate and the pension benefit in the alternative situations are based on
Van Dalen (1991).