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Assessing the economic and budgetary impact of linking retirement ages and pension benefits to increases in longevity

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  • Alexander Schwan
  • Etienne Sail

Abstract

This paper focuses on potential public pension expenditure, pension adequacy and fiscal sustainability effects when linking retirement ages and pension benefits with future increases in longevity. Simulation results show that the expected increases in public pension expenditures as a share of GDP could almost be halved, when fully linking retirement ages to life expectancy gains in the future. The expected decrease in the benefit ratio due to recent pension reforms could be diminished. Even higher reductions in future pension spending would materialize with a rule that links pension benefits to longevity gains without adapting statutory retirement ages. However, if people do not extend their working lives in order to maintain the level of pension benefits, serious adequacy problems may arise. To fully stabilize public pension expenditures, further reform measures on top of a retirement age or pension benefit link to gains in life expectancy need to be considered in most Member States.

Suggested Citation

  • Alexander Schwan & Etienne Sail, 2013. "Assessing the economic and budgetary impact of linking retirement ages and pension benefits to increases in longevity," European Economy - Economic Papers 2008 - 2015 512, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0512
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    1. repec:cbh:journl:v:14:y:2015:i:2:p:89-127 is not listed on IDEAS
    2. Emese Kreiszné Hudák & Péter Varga & Viktor Várpalotai, 2015. "The macroeconomic impacts of demographic changes in Hungary in the context of the European Union," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(2), pages 89-127.
    3. Oksanen Heikki, 2014. "Public finance sustainability gap and raising the retirement age, abstract and full summary," Research Reports 177, Government Institute for Economic Research Finland (VATT).

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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