Stabilizing Pay-as-You-Go Pension Schemes in the Face of Rising Longevity and Falling Fertility: An Application to the Netherlands

Abstract

Rising longevity and falling fertility threaten the sustainability of pay-as-you-go pension chemes. This paper shows that maintaining the intergenerational balance in the Dutch pay-as-you-go pension scheme in the face of increased longevity since the introduction of the scheme in 1957 would have required a gradual increase of the retirement age to at least 68 years for the generation born in 1945. Furthermore, we show that projected increases in labour-force participation rates do not generate sufficient additional tax revenues to subsitute for the dearth of human capital caused by falling fertility rates.

Keywords: public pension, pay-as-you-go system

JEL Classification: H5