The old-age pension household replacement rate in Belgium

Alessio Brown and Anne-Lore Fraikin

The Journal of the Economics of Ageing, 2022, vol. 23, issue C

Abstract: The objective of the paper is to examine the retirement behaviour of Belgian workers in one-earner households who are automatically granted a more generous old-age pension benefits replacement rate, called the household replacement rate. Following a recommendation of the Belgian Pension Reform Committee, this policy is to be suppressed for new pensioners, except for those receiving the minimum pension. We provide an ex-ante impact evaluation of such reform on both pension sustainability and adequacy measures. Specifically, we test whether the household replacement rate entails a work (dis)incentive mechanism promoting (harming) pension sustainability and furthermore, we analyse the role of the household replacement rate in old-age poverty and inequality measures. To do so, we use the survey dataset SHARE and a discrete time logistic duration model to study the link between retirement and financial retirement incentives created by the social security system. Further, we use a microsimulation model to estimate the magnitude of the assumed impact of the household replacement rate on retirement and we find that this policy generates higher retirement incentives through an income effect. At the same time, we simulate various social security wealth indicators under different household replacement rate scenarios and we find that the household replacement rate could potentially play an important role in decreasing the elderly poverty rate since households with asymmetrical working arrangements are often at the lowest part of the equivalized income distribution. Overall, despite the supposed positive poverty and distributional aspects of this policy, our simulation analysis supports the reform proposal of removing the household replacement rate.

Keywords: Retirement; Belgium; Old-age pension; Labour supply; Social security (search for similar items in EconPapers)
JEL-codes: H31 H55 J22 J26 (search for similar items in EconPapers)
Date: 2022
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Working Paper: The old-age pension household replacement rate in Belgium (2022)
Working Paper: The Old-Age Pension Household Replacement Rate in Belgium (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecag:v:23:y:2022:i:c:s2212828x22000342

DOI: 10.1016/j.jeoa.2022.100402

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