Altruism and fairness in a public pension system

on the future incomes of the young and middle-aged is uncertain as it depends again on the contribution
rate, income and age.

The last two scenarios involve situations that include the consequences of the ageing process. Two
(extreme) hypothetical situations are presented in the questionnaire. The fourth scenario (LB) describes
the situation in which pension contribution rates do not change but the total ageing effects are
intercepted by a decrease in the pension benefits. The respondents have been informed about the
amounts the young and middle-aged will have to save in this situation in order to compensate for the
decline in their public pension benefit. If they (will) save that amount of money, the present
consumption possibilities are negatively affected, but the future possibilities remain the same as they
are in the basic situation. The very last scenario (EB) more or less describes the opposite case. Now
the public pension benefit remains the same, but the contribution rate increases over time because of
the ageing effects. In this situation the income position of the contemporary old does not change. The
income position of the young and middle-aged decreases because of the higher contributions. Again,
the respondents have been informed about the possibility of maintaining current income at the expense
of a lower amount of old-age savings.

Table 3.1 Summary of the effects on the pension variables in each situation

*) This effect depends on the age of the individual. For individuals of about 25 years old the ratio will hardly
change since they face a higher or lower contribution rate during their entire life. Correspondingly, they
receive a higher or lower benefit.

For each situation, table 3.1 gives for each generation an overview of the effects on the public pension
benefit, the contribution and the ratio between benefit and contribution. In the table, + indicates an
increase (relative to the basic situation), - a decrease, 0 no effect and ? an unknown effect.

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