If a pension system must be rebalanced, the level of pensions should not be reduced

We will use the specific case of France to illustrate our broader point. If a country wants to correct a deficit in its public pension system, it should avoid using a cut in the level of pensions as a solution, as this: Breaks trust in intergenerational solidarity; Drives down domestic demand by leading to less consumption by pensioners, who have a high propensity to consume; May give rise to poor pensioners, especially if pensions are not indexed to prices ; pensions must then be propped up with other social welfare systems; Drives up precautionary savings among the “young”. The best tool to rebalance the finances of a public pension system is the duration of mandatory contributions.