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Longevity Adjustment of Pension Benefits

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Author Info
Jukka Lassila
Tarmo Valkonen
Abstract

ABSTRACT : In anticipation of future gains in life expectancy, several countries have passed laws that automatically adjust pensions, if life expectancy changes. In this paper we study the effects of longevity adjustment under demographic uncertainty in Finland. If longevity increases, the adjustment decreases the contribution rate, and the reduction is bigger the higher the rate would have been without the reform. On the other hand, longevity adjustment increases the uncertainty in replacement rates. The current middle-aged generations, whose pensions are reduced more than contributions, are likely to experience the largest losses. The full gains are observed far in future. The quantitative results depend on, besides demographic realisations, the specifics of the pension system. Longevity adjustment significantly weakens the defined-benefit nature of the Finnish pension system and brings in a strong defined-contribution flavour.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1073.

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Length: 20 pages
Date of creation: 14 Feb 2007
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Handle: RePEc:rif:dpaper:1073

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Keywords: pensions longevity demographic uncertainty

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Terttu Luukkonen & Mari Maunula, 2007. "Non-financial Value-added of Venture Capital: A Comparative Study of Different Venture Capital Investors," Discussion Papers 1067, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Alho, Juha M. & Hougaard Jensen, Svend E. & Lassila, Jukka & Valkonen, Tarmo, 2005. "Controlling the effects of demographic risks: the role of pension indexation schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(02), pages 139-153, July. [Downloadable!]
  3. Aija Leiponen, 2006. "Competing through cooperation: Standard setting in wireless telecommunications," Discussion Papers 1056, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Niku Määttänen & Mika Maliranta, 2007. "T&K-toiminnan verokannustimet ja yritysdynamiikka," Discussion Papers 1065, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Tarmo Valkonen, 2007. "Tutkimus- ja tuotekehitysinvestointien verotuki," Discussion Papers 1066, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Torben Andersen, 2005. "Social Security and Longevity," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Alan J. Auerbach & Kevin A. Hassett, 1999. "Uncertainty and the Design of Long-Run Fiscal Policy," NBER Working Papers 7036, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Olavi Rantala, 2007. "Palvelualojen kilpailu ja hinnanmuodostus kansainvälisessä vertailussa," Discussion Papers 1069, The Research Institute of the Finnish Economy. [Downloadable!]
  9. Christopher Palmberg, 2007. "Nanoteknologiastako seuraava yleiskäyttöinen teknologia? - Havaintoja Suomen näkökulmasta," Discussion Papers 1072, The Research Institute of the Finnish Economy. [Downloadable!]
  10. Sami Napari, 2006. "Perhevapaiden palkkavaikutukset: katsaus kirjallisuuteen," Discussion Papers 1044, The Research Institute of the Finnish Economy. [Downloadable!]
  11. Niku Määttänen & Panu Poutvaara, 2006. "Should Old-age Benefits Be Earnings-tested," Discussion Papers 1062, The Research Institute of the Finnish Economy. [Downloadable!]
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  12. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
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  13. Alan J. Auerbach & Kevin A. Hassett, 2002. "Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty," NBER Working Papers 9132, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Ville Kaitila & Reijo Mankinen & Nuutti Nikula, 2006. "Yksityisten palvelualojen kansainvälinen tuottavuusvertailu," Discussion Papers 1043, The Research Institute of the Finnish Economy. [Downloadable!]
  15. Christopher Palmberg & Mika Pajarinen & Tuomo Nikulainen, 2007. "Transferring Science-based Technologies to Industry - Does Nanotechnology Make a Difference?," Discussion Papers 1064, The Research Institute of the Finnish Economy. [Downloadable!]
  16. Elad Harison & Heli Koski, 2006. "Innovative Software Business Strategies: Evidence from Finnish Firms," Discussion Papers 1042, The Research Institute of the Finnish Economy. [Downloadable!]
  17. Fehr, Hans & Habermann, Christian, 2006. "Pension reform and demographic uncertainty: the case of Germany," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(01), pages 69-90, February. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rita Asplund, 2007. "Finland: Decentralisation Tendencies within a Collective Wage Bargaining System," Discussion Papers 1077, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Sarianna M. Lundan, 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Petri Böckerman & Edvard Johansson & Satu Helakorpi & Antti Uutela, 2007. "Economic Inequality and Health: Looking Beyond Aggregate Indicators," Discussion Papers 1104, The Research Institute of the Finnish Economy. [Downloadable!]
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  4. Jyrki Ali-Yrkkö & Mika Pajarinen & Petri Rouvinen & Pekka Ylä-Anttila, 2007. "Family Businesses and Globalization in Finland," Discussion Papers 1080, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Mikko Mäkinen, 2007. "Do Stock Opiton Schemes Affect Technical Inefficiency? Evidence from Finland," Discussion Papers 1085, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Kari Alho & Nuutti Nikula, 2007. "Productivity, Employment and Taxes - A SVAR Analysis of Trade-offs and Impacts," Discussion Papers 1074, The Research Institute of the Finnish Economy. [Downloadable!]
  7. Paavo Suni, 2007. "Oil Prices and the Russian Economy. Some Simulation Studies with NiGEM," Discussion Papers 1088, The Research Institute of the Finnish Economy. [Downloadable!]
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