[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/51270.html
   My bibliography  Save this paper

How best to measure pension adequacy

Author

Listed:
  • Grech, Aaron George
Abstract
Though the main benchmark used to assess pension reforms continues to be the expected resulting fall in future government spending, the impact of policy changes on pension adequacy is increasingly coming to the fore. As yet, there does not seem to be a broad consensus in policymaking circles and academic literature on what constitutes the best measure of pension adequacy. While various indicators have been developed and utilised, no single measure appears to offer a clear indication of the extent to which reforms will impact on the achievement of pension system goals. Many indicators appear ill-suited to study the effective impact of reforms, particularly those that change the nature of the pension system from defined benefit to defined contribution. Existing measures are frequently hard to interpret as they do not have an underlying benchmark which allows their current or projected value to be assessed as adequate or inadequate. Currently used pension adequacy indicators tend to be point-in-time measures which ignore the impact of benefit indexation rules. They also are unaffected by very important factors, such as changes in the pension age and in life expectancy. This tends to make existing indicators minimise the impact of systemic reforms on the poverty alleviation and income replacement functions of pension systems. The emphasis on assumptions which are very unrepresentative of real-life labour market conditions also makes current indicators deceptive, particularly in relation to outcomes for women and those on low incomes. This paper posits that these defects can be remedied by using adequacy indicators based on estimates of pension wealth (i.e. the total projected flow of pension benefits through retirement) calculated using more realistic labour market assumptions. These measures are used to give a better indication of the effective impact of pension reforms enacted since the 1990s in ten major European countries. They suggest that these reforms have decreased generosity significantly, but that the poverty alleviation function remains strong in those countries where minimum pensions were improved. However, moves to link benefits to contributions have raised clear adequacy concerns for women and for those on low incomes which policymakers should consider and tackle.

Suggested Citation

  • Grech, Aaron George, 2013. "How best to measure pension adequacy," LSE Research Online Documents on Economics 51270, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:51270
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/51270/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications - Books, The World Bank Group, number 7336.
    2. Ondøej Schneider, 2009. "Reforming Pensions in Europe: Economic Fundamentals and Political Factors," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 292-308, Oktober.
    3. Michael Fuchs & Aaron George Grech & Asghar Zaidi, 2006. "Pension Policy in EU25 and its Possible Impact on Elderly Poverty," CASE Papers case116, Centre for Analysis of Social Exclusion, LSE.
    4. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(1), pages 15-39, Spring.
    5. Grech, Aaron George, 2010. "Assessing the sustainability of pension reforms in Europe," LSE Research Online Documents on Economics 43865, London School of Economics and Political Science, LSE Library.
    6. Olivia S. Mitchell & John W.R. Phillips, 2006. "Social Security Replacement Rates for Alternative Earnings Benchmarks," Working Papers wp116, University of Michigan, Michigan Retirement Research Center.
    7. Grech, Aaron George, 2006. "Elderly poverty in EU25," MPRA Paper 33618, University Library of Munich, Germany.
    8. Modigliani,Franco & Muralidhar,Arun, 2005. "Rethinking Pension Reform," Cambridge Books, Cambridge University Press, number 9780521676533, September.
    9. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
    10. repec:cep:sticas:/161 is not listed on IDEAS
    11. Eckardt, Martina, 2003. "The Open Method of Co-ordination on Pensions - An Economic Analysis of its Effects on Pension Reforms," Thuenen-Series of Applied Economic Theory 39, University of Rostock, Institute of Economics.
    12. Grech, Aaron George, 2007. "Pension policy in EU25 and its impact on pension benefits," MPRA Paper 33669, University Library of Munich, Germany.
    13. Michael D. Hurd & Susann Rohwedder, 2008. "The Adequacy of Economic Resources in Retirement," Working Papers wp184, University of Michigan, Michigan Retirement Research Center.
    14. Madrian, Brigitte & Mitchell, Olivia S. & Soldo, Beth J. (ed.), 2007. "Redefining Retirement: How Will Boomers Fare?," OUP Catalogue, Oxford University Press, number 9780199230778.
    15. Mr. Alain Jousten, 2007. "Public Pension Reform: A Primer," IMF Working Papers 2007/028, International Monetary Fund.
    16. Michael Förster & Marco Mira d'Ercole, 2005. "Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s," OECD Social, Employment and Migration Working Papers 22, OECD Publishing.
    17. Michael D. Hurd & Susann Rohwedder, 2008. "Adequacy of Economic Resources in Retirement and Returns-toscale in Consumption," Working Papers wp174, University of Michigan, Michigan Retirement Research Center.
    18. Elizabeth Caucutt & Thomas Cooley & Nezih Guner, 2013. "The farm, the city, and the emergence of social security," Journal of Economic Growth, Springer, vol. 18(1), pages 1-32, March.
    19. Grech, Aaron George, 2012. "Evaluating the possible impact of pension reforms on future living standards in Europe," MPRA Paper 39851, University Library of Munich, Germany.
    20. P. Jenkins, Stephen & Bardasi, Elena & A. Rigg, John, 2000. "Retirement and the economic well-being of the elderly: a British perspective," ISER Working Paper Series 2000-33, Institute for Social and Economic Research.
    21. Avram, Silvia & Sutherland, Holly, 2012. "Baseline results from EUROMOD: 2006-2009 policies," EUROMOD Working Papers EM1/12, EUROMOD at the Institute for Social and Economic Research.
    22. Carl Emmerson & Howard Reed & Andrew Shephard, 2004. "An assessment of PenSim2," IFS Working Papers W04/21, Institute for Fiscal Studies.
    23. Edward Whitehouse, 2003. "The Value of Pension Entitlements: A Model of Nine OECD Countries," OECD Social, Employment and Migration Working Papers 9, OECD Publishing.
    24. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
    25. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-926, Sept./Oct.
    26. Palacios, Robert & Sluchynsky, Oleksiy, 2006. "Social pensions Part I : their role in the overall pension system," Social Protection Discussion Papers and Notes 36237, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Aaron George Grech, 2015. "The Financial Crisis and Differences in State Pension Generosity across EU Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 36-41, August.
    2. Filip Chybalski & Edyta Marcinkiewicz, 2016. "The Replacement Rate: An Imperfect Indicator of Pension Adequacy in Cross-Country Analyses," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 126(1), pages 99-117, March.
    3. Brown, Alessio J.G. & Fraikin, Anne-Lore, 2022. "The old-age pension household replacement rate in Belgium," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    4. Qing Zhao & Zhen Li & Yihuan Wang, 2019. "Adequacy Analysis of the Basic Old-Age Pension System Based on Local Administrative Data in China," Sustainability, MDPI, vol. 11(24), pages 1-18, December.
    5. Anne LAVIGNE & Christophe DANIEL & Jesus Herell NZE-OBAME & Christian Rodrigue TAGNE & Bruno SEJOURNE & Stéphane MOTTET, 2016. "La réforme des retraites de 1993 en France : quel impact sur l’équivalent patrimonial des droits à la retraite ?," LEO Working Papers / DR LEO 2337, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    6. Marhanum Che Mohd Salleh & Mohammad Abdul Matin Chowdhury & Siti Salwani Razali & Nan Nurhidayu Megat Laksana, 2020. "Retirement Schemes, its Challenges and Ways of Reformation: A Cross-Border Study," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 10(9), pages 507-520, September.
    7. Michal Mešťan & Ivan Králik & Matej Žofaj & Nikola Karkošiaková & Audrius Kabašinskas, 2021. "Projections of pension benefits in supplementary pension saving scheme in Slovakia," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 29(2), pages 687-712, June.
    8. Anne LAVIGNE & Christophe DANIEL & Stéphane MOTTET & Jesus Herell NZE-OBAME & Bruno SEJOURNE & Christian Rodrigue TAGNE, 2016. "L’équivalent patrimonial des droits à la Retraite en France : méthodologie et mesure à partir de l’Echantillon Inter-régime de retraités (version de Février 2016)," LEO Working Papers / DR LEO 2351, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    9. repec:ces:ifodic:v:13:y:2015:i:2:p:19166297 is not listed on IDEAS
    10. Christian Rodrigue TAGNE, 2016. "Derived Pensions Rights and Pension Wealth: an Assessment Using French Data," LEO Working Papers / DR LEO 2431, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    11. Juan-José Alonso-Fernandez & Robert Meneu-Gaya & Enrique Devesa-Carpio & Mar Devesa-Carpio & Inmaculada Dominguez-Fabian & Borja Encinas-Goenechea, 2018. "From the Replacement Rate to the Synthetic Indicator: A Global and Gender Measure of Pension Adequacy in the European Union," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(1), pages 165-186, July.
    12. Edyta Marcinkiewicz, 2019. "Voluntary Pensions Development and the Adequacy of the Mandatory Pension System: Is There a Trade-Off?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 143(2), pages 609-636, June.
    13. Aaron George Grech, 2015. "The Financial Crisis and Differences in State Pension Generosity across EU Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(2), pages 36-41, 08.
    14. Aaron George, Grech, 2014. "Pension policy design: The core issues," MPRA Paper 53662, University Library of Munich, Germany.
    15. Christophe Daniel & Anne Lavigne & Stéphane Mottet & Jesus-Herell Nze Obame & Bruno Séjourné & Christian Tagne, 2015. "Retirees' Pension Wealth in France: An Assessment on Sample Administrative Data," Working Papers halshs-01175605, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cep:sticas:/172 is not listed on IDEAS
    2. Grech, Aaron George, 2010. "Assessing the sustainability of pension reforms in Europe," LSE Research Online Documents on Economics 43865, London School of Economics and Political Science, LSE Library.
    3. Aaron George, Grech, 2014. "Pension policy design: The core issues," MPRA Paper 53662, University Library of Munich, Germany.
    4. Grech, Aaron George, 2014. "Evaluating the possible impact of pension reforms on elderly poverty in Europe," MPRA Paper 57639, University Library of Munich, Germany.
    5. Aaron George Grech, 2018. "What Makes Pension Reforms Sustainable?," Sustainability, MDPI, vol. 10(8), pages 1-12, August.
    6. repec:cep:sticas:/161 is not listed on IDEAS
    7. Grech, Aaron George, 2012. "Evaluating the possible impact of pension reforms on future living standards in Europe," MPRA Paper 39851, University Library of Munich, Germany.
    8. Grech, Aaron George, 2013. "Pension reform sustainability in the EU: a pension wealth-based framework," MPRA Paper 48800, University Library of Munich, Germany.
    9. Figari, Francesco & Matsaganis, Manos & Sutherland, Holly, 2011. "The financial well-being of older people in Europe and the redistributive effects of minimum pension schemes," EUROMOD Working Papers EM7/11, EUROMOD at the Institute for Social and Economic Research.
    10. Sabina Hod?i? & Lucija Rogi? Duman?i? & Emira Be?i?, 2019. "Financial stability of pension system in the European Union member states," Proceedings of International Academic Conferences 9912130, International Institute of Social and Economic Sciences.
    11. Qing Zhao & Zhen Li & Yihuan Wang, 2019. "Adequacy Analysis of the Basic Old-Age Pension System Based on Local Administrative Data in China," Sustainability, MDPI, vol. 11(24), pages 1-18, December.
    12. Filip Chybalski & Edyta Marcinkiewicz, 2016. "The Replacement Rate: An Imperfect Indicator of Pension Adequacy in Cross-Country Analyses," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 126(1), pages 99-117, March.
    13. Poteraj, Jarosław, 2008. "Pension systems in 27 EU countries," MPRA Paper 31053, University Library of Munich, Germany.
    14. Brown, Alessio J.G. & Fraikin, Anne-Lore, 2022. "The old-age pension household replacement rate in Belgium," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    15. Malgorzata Gumola-Kardas, 2021. "Change in a Pension System: A Manageable and Measurable Process?," European Research Studies Journal, European Research Studies Journal, vol. 0(3B), pages 421-433.
    16. Marga Peeters, 2012. "Better Safe than Sorry - Individual Risk-free Pension Schemes in the European Union," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 6(3), September.
    17. Marhanum Che Mohd Salleh & Mohammad Abdul Matin Chowdhury & Siti Salwani Razali & Nan Nurhidayu Megat Laksana, 2020. "Retirement Schemes, its Challenges and Ways of Reformation: A Cross-Border Study," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 10(9), pages 507-520, September.
    18. EL-HOUJJAJI, Hind & ECHAOUI, Abdellah, 2020. "Assessing the financial sustainability of parametric pension system reforms: The case of Morocco," MPRA Paper 98912, University Library of Munich, Germany.
    19. Qing Zhao & Haijie Mi, 2019. "Evaluation on the Sustainability of Urban Public Pension System in China," Sustainability, MDPI, vol. 11(5), pages 1-20, March.
    20. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
    21. Laurence J. Kotlikoff & John B. Shoven & Avia Spivak, 1987. "Annuity Markets, Savings, and the Capital Stock," NBER Chapters, in: Issues in Pension Economics, pages 211-236, National Bureau of Economic Research, Inc.
    22. Julian Diaz Saavedra, 2013. "Age-dependent Taxation, Retirement Behavior, and Work Hours Over the Life Cycle," ThE Papers 13/09, Department of Economic Theory and Economic History of the University of Granada..

    More about this item

    Keywords

    social security and public pensions; retirement; poverty; retirement policy;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    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:ehl:lserod:51270. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.