IDEAS home Printed from https://ideas.repec.org/p/oec/elsaab/77-en.html
   My bibliography  Save this paper

Pensions, Purchasing-Power Risk, Inflation and Indexation

Author

Listed:
  • Edward R. Whitehouse

    (OECD)

Abstract

The rapid rise in inflation in 2006-07 has attracted attention – once again – both to how pensions systems should react to changes in prices, and to how they do so in practice. Although inflation is now falling as a result of lower commodity prices and weakening demand, this brings with it the risk of deflation – falling prices – which also raises questions as to how pension systems should react. Most OECD countries have a legislated commitment to indexation of pensions in payment. However, the empirical evidence in this paper shows that these rules have frequently been over-ridden. Furthermore, because indexation to price inflation rather than wage inflation is much more common – and wages can be expected to rise more rapidly than prices – the effect of following legislated indexation rules will be to reduce pensioner incomes compared with those of the working-age population. However, indexation to prices is less costly, allowing a larger initial pension than under earnings indexation for a given budget constraint. This paper sets out current, national indexation policies and historical data on how pensions have been adjusted in practice. It examines different indexation policies: to prices, earnings or a mix of the two; the choice of the price index and progressive indexation (where smaller pensions are increased more rapidly than larger). La forte reprise de l’inflation en 2006-07 a, de nouveau, attiré l’attention à la fois sur la manière dont les régimes de pensions devraient réagir aux évolutions des prix, et sur la manière dont ils réagissent dans les faits. Même si l’inflation est actuellement en chute, par suite de la baisse des prix des matières premières et de l’affaiblissement de la demande, il en résulte un risque de déflation – c’est-à-dire de chute des prix – qui conduit aussi à s’interroger sur la manière dont les régimes de pensions devraient réagir. Dans la plupart des pays de l’OCDE, la loi prévoit l’indexation obligatoire des prestations de retraite. Cependant, les données d’observation réunies dans le présent document montrent que, bien souvent, ces règles sont négligées. Par ailleurs, dans la mesure où le plus souvent, cette l’indexation s’opère beaucoup sur les prix plutôt que sur les salaires,– et que l’on peut s’attendre à ce que les salaires augmentent plus rapidement que les prix – l’application des règles d’indexation prescrites par la loi aura pour effet de réduire les revenus des retraités par rapport à ceux de la population en âge de travailler. Toutefois, l’indexation sur les prix étant moins onéreuse, cela permet de servir un montant initial de pension plus élevé que dans le cas d’une indexation sur la base des gains, pour un niveau donné de contrainte budgétaire. Le document présente différentes politiques nationales d’indexation en vigueur ainsi que des données historiques retraçant l’évolution des modalités concrètes d’ajustement des pensions. Il passe en revue différentes options : indexation sur les prix, sur les gains ou formule mixte ; choix de l’indice des prix et indexation progressive (lorsque les pensions moins élevées augmentent plus vite que les pensions plus élevées).

Suggested Citation

  • Edward R. Whitehouse, 2009. "Pensions, Purchasing-Power Risk, Inflation and Indexation," OECD Social, Employment and Migration Working Papers 77, OECD Publishing.
  • Handle: RePEc:oec:elsaab:77-en
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1787/227182142567
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Tuesta, 2011. "A review of the pension systems in Latin America," Working Papers 1115, BBVA Bank, Economic Research Department.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:elsaab:77-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/eloecfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.