Automatic Indexation of the Pension Age to Life Expectancy: When Policy Design Matters

Mercedes Ayuso, Jorge Bravo, Robert Holzmann and Edward Palmer
Additional contact information
Mercedes Ayuso: Department of Econometrics, Statistics and Applied Economy, Riskcenter-UB, University of Barcelona, 08034 Barcelona, Spain
Edward Palmer: Uppsala Center for Labor Studies and Department of Economics, SE-751 20 Uppsala, Sweden

Risks, 2021, vol. 9, issue 5, 1-28

Abstract: Increasing retirement ages in an automatic or scheduled way with increasing life expectancy at retirement is a popular pension policy response to continuous longevity improvements. The question addressed here is: to what extent is simply adopting this approach likely to fulfill the overall goals of policy? To shed some light on the answer, we examine the policies of four countries that have recently introduced automatic indexation of pension ages to life expectancy–The Netherlands, Denmark, Portugal and Slovakia. To this end, we forecast an alternative period and cohort life expectancy measures using a Bayesian Model Ensemble of heterogeneous stochastic mortality models comprised of parametric models, principal component methods, and smoothing approaches. The approach involves both the selection of the model confidence set and the determination of optimal weights. Model-averaged Bayesian credible prediction intervals are derived accounting for various stochastic process, model, and parameter risks. The results show that: (i) retirement ages are forecasted to increase substantially in the coming decades, particularly if a constant period in retirement is targeted; (ii) retirement age policy outcomes may substantially deviate from the policy goal(s) depending on the design adopted and its implementation; and (iii) the choice of a cohort over period life expectancy measure matters. In addition, the distributional issues arising with the increasing socio-economic gap in life expectancy remain largely unaddressed.

Keywords: retirement age; pension policy; life expectancy; Bayesian Model Ensemble; stochastic mortality models; forecasting; heterogeneity (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.mdpi.com/2227-9091/9/5/96/pdf (application/pdf)
https://www.mdpi.com/2227-9091/9/5/96/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:9:y:2021:i:5:p:96-:d:554249

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().