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Designing pension benefits when longevities increase with wages

Andras Simonovits ()

No 1804, IEHAS Discussion Papers from Institute of Economics, Centre for Economic and Regional Studies

Abstract: At the design of public pension systems, the designers frequently neglect that higher earners statistically live longer, and possibly also retire later. Since the first difference has recently been rising steeply, this negligence is less and less tolerable, especially with nonfinancial defined contribution system (NDC). We analyze three simple connected pension models to understand how the redistribution from the low-earners to the high-earners can be reduced or reversed. Our answers: either mixing NDC and flat benefit or reducing the weight of wage indexation of benefits. It is an open question how the neglected behavioral reactions (lower share of NDC implies lower labor supply and greater tax evasion) influence the social welfare.

Keywords: public pension system; retirement age; wage indexation; wage-dependent life expectancy (search for similar items in EconPapers)
JEL-codes: D10 H55 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2018-02
New Economics Papers: this item is included in nep-age and nep-pbe
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