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Theoretical Old-Age Pension Benefits and Replacement Rates in the Baltic States: A Retrospective Simulation

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  • Rajevska Olga

    (University of Latvia)

Abstract

The author presents a comparative analysis of old-age pension systems in Estonia, Latvia and Lithuania using a method of retrospective simulation run on a self-developed model. The model baseline case is a person retiring in December 2014 after 40 years of service with nationwide average salary. Other cases include lowand high-earners, funded schemes participants and simulations for modified notional capital valorisation formulae. Three study countries return very dissimilar results, which is caused by differences in their pension systems’ designs. Lack of non-contributory element (basic pension) in Latvia leads to a low degree of progressivity, with inexcusably low pensions to low-earners and excessively generous pensions to high-earners. Participation in funded pillar II schemes has not brought any significant gains to pension plan sharers. Notional capital valorisation rules adopted in different countries that use the NDC-system significantly influence pension amount.

Suggested Citation

  • Rajevska Olga, 2016. "Theoretical Old-Age Pension Benefits and Replacement Rates in the Baltic States: A Retrospective Simulation," Economics and Business, Sciendo, vol. 28(1), pages 13-19, April.
    • Handle: RePEc:vrs:ecobus:v:28:y:2016:i:1:p:13-19:n:2
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    References listed on IDEAS

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    1. Ebbinghaus, Bernhard (ed.), 2011. "The Varieties of Pension Governance: Pension Privatization in Europe," OUP Catalogue, Oxford University Press, number 9780199586028.
    2. Aggarwal, Raj & Goodell, John W., 2013. "Political-economy of pension plans: Impact of institutions, gender, and culture," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1860-1879.
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