IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The life cycle distributional consequence of pay-as-you-go and funded pension systems

  • Falkingham, Jane
  • Johnson, Paul
Registered author(s):

    Using a dynamic cohort microsimulation model (LIFEMOD), the authors examine the life-cycle distributional consequences of a variety of pay-as-you-go (PAYG) and funded pension systems. This technique allows them to investigate both the socioeconomic characteristics and the number of people affected by a change in contribution or eligibility rules in any pension system. LIFEMOD uses 1985 parameters for the United Kingdom so specific results are not valid for other countries. But winners and losers are likely to be similar across countries. They find the following: Women benefit much more than men in a flat-rate PAYG system. In simulations, 84 percent of surviving women but only 33 percent of surviving men are net beneficiaries, because women have higher life expectancy and lower lifetime earnings. Imposing minimum contributions substantially reduces the number of women who qualify for a pension. Imposing a joint contribution rule on the earnings of married couples significantly increases the number of women qualifying without significantly reducing the proportion of qualifying men. In funded pension systems, on average men accumulate much more pension capital than women do because of men's higher earnings and more continuous paid work. Different rates of real interest and earnings growth affect individuals'fund accumulation differently. Women benefit more from high rates of return and low earnings growth because they tend to receive a higher proportion of their lifetime earnings when young. But some men and many women fail to achieve minimum pension levels. If the pension shortfall is compensated for by lump-sum capital top-ups, women receive 93 percent of top-ups (70 percent if joint contributions are used). In hybrid pension systems that combine both PAYG and funded elements, the higher the proportion of PAYG payments, the greater the replacement rate for people in the bottom 40 percent of the lifetime earnings distribution (the majority of whom are women). But replacement rates for people in the middle of income distribution are insensitive to any variant of the PAYG-funded combination. In short, flat-rate pay-as-you-go pension plans and funded pensions produce very different distributional outcomes, the single most important determinant of which is the different lifetime employment and earnings records of men and women.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1993/10/01/000009265_3961005100529/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1200.

    as
    in new window

    Length:
    Date of creation: 31 Oct 1993
    Date of revision:
    Handle: RePEc:wbk:wbrwps:1200
    Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
    Web page: http://www.worldbank.org/
    Email:


    More information through EDIRC

    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.:

    as in new window
    1. Wolfson, Michael C, 1988. "Homemaker Pensions and Lifetime Redistribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(3), pages 221-50, September.
    2. Robert Summers, 1956. "An Econometric Investigation of the Lifetime Size Distribution of Average Annual Income," Cowles Foundation Discussion Papers 9, Cowles Foundation for Research in Economics, Yale University.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1200. 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: (Roula I. Yazigi)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.