Value-based generational accounting on national old-age pension in the Netherlands

In response to the large-scale demographic ageing, alternative policy reforms with respect to the national old-age pension have effects on generational accounts in the Netherlands. Traditional methodology calculates implicit tax and implicit tax rate in a deterministic manner. In this paper, we introduce the so-called stochastic discount factor and thereafter perform valuation in a stochastic setting. The basic idea is that future cash flows in different scenarios should be discounted to the present value differently. Two policy reforms are investigated, increasing retirement age and adjusting pension benefits and contributions, including pension benefits cut, higher payroll contributions and the mixed strategy.