The Distributional Implications of Pension Benefit Indexation

Torben M. Andersen and Cecilie Marie Løchte Jørgensen

No 10943, CESifo Working Paper Series from CESifo

Abstract: Socio-economic differences in longevity have fuelled a debate whether pension systems have a regressive bias favouring groups with a high life expectancy. We show that the distributional implications of such pooling depend critically on the benefit profile across age/time, which in turn is determined by how benefits are indexed to prices and wages. Choosing indexation scheme involves a choice between a low initial benefit with an increasing profile and a high initial benefit with a flat/decreasing profile, where the former benefits groups with a high life expectancy, and vice versa. We analyse how indexation affects the trade-off between insurance and distribution when groups with different mortality are separated or pooled, and the optimal benefit profile under both standard preferences and temporal risk aversion wrt. the length of life.

Keywords: annuities; differential mortality; distribution; indexation (search for similar items in EconPapers)
JEL-codes: D14 G22 H55 J18 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-age, nep-hea and nep-mac
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