How should a points-based pension system be managed?

Summary A points-based system, operating with a defined return, makes it possible to rethink the management of the pension system. Instead of having to repeatedly modify the system's parameters on an ad hoc basis, it is possible to define rules of evolution that offer guarantees to the insured, both on their rights and on the long-term sustainability of the system. Based on simulations of a variety of shocks to the pension system, this note examines which steering rules are worth retaining. Two rules must absolutely be retained: first, the value of the pension point must follow wage growth, and second, the conversion into a pension must take into account the life expectancy of each generation. A third rule, important for the long term, is the relationship between the rules for indexing liquidated pensions and the amount at liquidation. This rule must serve as a guide for managers in order to steer the system towards a balance that is not based on too little indexation of pensions. Such steering implies a strong institutional autonomy of the system, where managers must be responsible for the financial balance, as well as for the risks on the revaluation of pensions.