Fairness of Public Pensions and Old-Age Poverty
AbstractIn several OECD countries, public pay-as-you-go pension systems have undergone major reforms in which future retirement benefit promises have been scaled down. A consequence of these reforms is that, especially in countries with a tight tax - benefit linkage, the retirement benefit claims of low-income workers might not even exceed the minimum income guarantee that the government provides the aged. Recently, some German politicians have criticized this likely development in that it was unjust that persons who have paid contributions over a long working life end up with no higher benefits than those who have never worked or paid any contributions. However, the government defended the current retirement benefit formula with the argument that every euro paid as contributions had exactly the same value in generating future retirement benefits. But this logic has been questioned recently - e.g., by Breyer and Hupfeld (2009) - in that the value of a contributed euro depends on the life expectancy of the individual, which is positively correlated with annual income. In that earlier paper, we introduced the concept of distributive neutrality , which takes income-group-specific differences in life expectancy into account. The present paper estimates the relationship between annual earnings and life expectancy of German retirees empirically and shows how the formula that links benefits to contributions would have to be modified to achieve distributive neutrality. We compare the new formula with the benefit formulas in other OECD countries and analyze a data set provided by the German Pension Insurance Office on a large cohort of pensioners to find out how the old-age poverty rate would be affected by the proposed change of the benefit formula. Finally, we discuss other possible effects of a change in the benefit formula, especially on the labor supply of different earnings groups.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 65 (2009)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Other versions of this item:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lars P. Feld & Manuel Kallweit & Anabell Kohlmeier, 2013.
"Maßnahmen zur Vermeidung von Altersarmut: Makroökonomische Folgen und Verteilungseffekte,"
Perspektiven der Wirtschaftspolitik,
Verein für Socialpolitik, vol. 14(3-4), pages 279-304, 08.
- Feld, Lars P. & Kallweit, Manuel & Kohlmeier, Anabell, 2013. "Maßnahmen zur Vermeidung von Altersarmut: Makroökonomische Folgen und Verteilungseffekte," Working Papers 03/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
- Feld, Lars P. & Kallweit, Manuel & Kohlmeier, Anabell, 2013. "Maßnahmen zur Vermeidung von Altersarmut: Makroökonomische Folgen und Verteilungseffekte," Freiburg Discussion Papers on Constitutional Economics 13/10, Walter Eucken Institut e.V..
- Friedrich Breyer & Normann Lorenz & Thomas Niebel, 2012.
"Health Care Expenditures and Longevity: Is There a Eubie Blake Effect?,"
Discussion Papers of DIW Berlin
1226, DIW Berlin, German Institute for Economic Research.
- Friedrich Breyer & Normann Lorenz & Thomas Niebel, 2012. "Health Care Expenditures and Longevity: Is there a Eubie Blake Effect?," Research Papers in Economics 2012-01, University of Trier, Department of Economics.
- Niklas Potrafke, 2011.
"Unemployment, Human Capital Depreciation and Pension Benefits: An Empirical Evaluation of German Data,"
Working Paper Series of the Department of Economics, University of Konstanz
2011-05, Department of Economics, University of Konstanz.
- Potrafke, Niklas, 2012. "Unemployment, human capital depreciation and pension benefits: an empirical evaluation of German data," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(02), pages 223-241, April.
- Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2011.
"Should Pensions be Progressive? Yes, at least in Germany!,"
CESifo Working Paper Series
3636, CESifo Group Munich.
- Kallweit, Manuel & Fehr, Hans & Kindermann, Fabian, 2011. "Should pensions be progressive? Yes, at least in Germany!," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48708, Verein für Socialpolitik / German Economic Association.
- Stefan Arent & Alexander Eck & Oskar Krohmer & Robert Lehmann & Wolfgang Nagl & Joachim Ragnitz & Marcel Thum, 2011. "Wirtschaftliche Entwicklung Sachsens im Ländervergleich: Bestandsaufnahme und Perspektiven: Gutachten im Auftrag der Sächsischen Staatskanzlei," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, number 59, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert).
If references are entirely missing, you can add them using this form.