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In financial equilibrium, a pay‐as‐you‐go pension system will offer yields (explicit or implicit) equal to the rate of growth of the incomes subject to the contribution levy or of reasonable proxies such as GDP. One virtue of the contribution‐based award formula is that it makes this yield explicit, permitting immediate verification of the system's sustainability. A second virtue is that it ensures equal treatment of all participants. Without prejudicing the constraint of financial sustainability, a pension scheme may choose any one of an infinite number of pairs (combinations) of initial award and indexation rates; or, in other words, any of an infinite set of curves of the total benefit over time. The 1995 pension reform enacted under Lamberto Dini elected zero real indexation, thus permitting higher initial income replacement rates. Insofar as it will generate pension disparities depending on year of retirement, this choice is the likely prelude to creeping real indexation, or recurrent equalizations that will drive the overall yield on contributions above the GDP growth rate and violate the constraint of financial sustainability. Before insoluble problems arise, the reformed system must be amended to decrease income replacement rates to a level compatible with an indexation procedure (be it automatic or discretionary) for adjusting benefits to society's real living standards, as all main pension systems do. The article also criticizes other choices made in the formulation of the law that will prevent the reform from achieving its stated purposes.
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