Indexing Pensions to Life Expectancy: Keeping the System Fair Across Generations

Mercedes Ayuso () and Jorge Miguel Bravo ()
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Mercedes Ayuso: University of Barcelona, Department of Econometrics, Statistics and Applied Economy, Riskcenter-UB, Faculty of Economics and Business
Jorge Miguel Bravo: NOVA IMS - Universidade Nova de Lisboa & Université Paris-Dauphine PSL & MagIC & CEFAGE-UE

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2022, pp 31-37 from Springer

Abstract: Abstract Linking pensions to longevity developments and population ageing is one of the most common types of automatic adjustment mechanisms in pension schemes. Although this reform approach is primarily driven by cost-containment objectives, other dimensions of welfare restructuring are present, including pension adequacy, recalibration, introducing economic and actuarial rationality, recommodification, and blame avoidance for unpopular policies that involve retrenchments. This paper discusses how to index pensions to longevity developments and population ageing in a way that is consistent with actuarial fairness and neutrality across generations. We derive an intergenerational fairness and neutrality condition for pension reform and examine alternative policy options including modifying the contribution rate, updating the statutory retirement age, or introducing sustainability factors.

Keywords: Automatic adjustment mechanisms; Life expectancy; Pensions; Actuarial fairness; Risk-sharing; Longevity risk (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-99638-3_6

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DOI: 10.1007/978-3-030-99638-3_6

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