On the effectiveness of quasi-universal transfers to older households: the case of Poland

One of the key challenges associated with current demographic trends is to provide adequate financial support to older households, which are more vulnerable to health problems and longevity risks, without jeopardizing fiscal sustainability or harming macroeconomic performance. Among possible policies, quasi-universal transfers have recently attracted interest in several countries. In this paper, I study the long-term equity-efficiency tradeoff of these programs and their modifications and compare their impact to that of more standard elderly-oriented policies with similar fiscal costs. My analysis is based on a general equilibrium overlapping generations model that incorporates different family types, individual risk associated with earnings, health and mortality, and stochastic out-of-pocket expenses. According to the model simulations, the quasi-universal transfer to retired households can significantly improve the financial situation of a median pensioner but generates an aggregate welfare loss (under the veil of ignorance). The estimated welfare loss remains robust across various model assumptions, indicating that the positive insurance effect of the quasi-universal transfer is more than offset by the cost of inefficient redistribution from future to current cohorts, even in economies with low provisions for old age insurance. Finally, the quasi-universal transfer outperforms a minimum pension increase by improving the financial situation of a median retiree and reducing relative poverty among pensioners, while being less harmful to economic efficiency.