Transcript WP 9 – Maintaining Living Standards After Retirement

WP 9 – Maintaining Living
Standards After Retirement
Elsa Fornero (University of Turin and CeRP)
Margherita Borella (University of Turin and CeRP)
Róbert I. Gál (Tarki)
Tamás Keller (Tarki)
Ján Košta (Slovak Academy of Sciences)
Katarzyna Piętka (CASE)
Bruxelles, 20 October 2008
Social Policy Objective
“Provide access for all individuals to appropriate
pension arrangements, public and/or private,
which allow them to earn pension entitlements
enabling them to maintain, to a reasonable
degree, their living standard after
retirement”
Plan of the Talk
• Theoretical framework
• Definition of indicators
• Data-based analysis
• Projection analysis
Theoretical Framework
• Life cycle model: in its simplest form, it
predicts individuals smooth their consumption
patterns. If retirement is anticipated (e.g. no
health shocks) consumption should be smoothed
at the time of retirement.
• Empirical evidence shows consumption is
actually reduced at the time of retirement.
A COmprehensive REplacement rate
(CORE)
1) Compare individuals’ living standards when
active and when retired
2) Approximate living standards with disposable
income
Replacement rates: a taxonomy
• Theoretical, empirical or simulated replacement
rates
• Time Horizon: actual or prospective
• Cross- sectional or longitudinal
• Individual vs average replacement rates
• Individual vs family
• Income measure: pension income vs disposable
income
• Net vs gross replacement rates
A cross-country analysis based on
CORE
1) Actual CORE:
 cross-country analysis based on ECHP data
(I, DK, F, DE, UK, LUX, NL, ES)
 country-specific analysis for PL, SK, HU
2) Projected CORE: all countries + LV
Actual CORE: cross-country
1) Use ECHP data to study various issues:
“standard” vs comprehensive replacement
rates; individual vs family based rates…
2) Disposable income: pension income from
public and private schemes, income from work,
unemployment, disability, survivor,
housing,and other social benefits.
3) Sample: 1996-2000 (wave 3-8)
Main results
1) Median individual RR vs median
individual CORE: CORE is higher than RR in
all countries (range 4-17 pp)
2) Gender differences: attenuated when
computing CORE (wrt RR)
3) Family disposable income: higher median
CORE in all countries.
Projected CORE
• Use CeRPSAM projections (2005-2050)
• Countries: I, DK, F, DE, UK, LUX, NL, ES, PL, SK,
HU, LV
• Different definition of CORE:
- no individual data
- compare disposable income by age class: 6569 vs 55-59
• Longitudinal or cross-sectional
COREtt k 
DISP_ INC tp / N tp
t k
a
DISP_ INC
(1  g ) / N
k
t k
a
Where:
- N : size of the considered cell
- p : an age class in which most individuals are
retired
- a : an age class in which most individuals are
active in the labour market
- k : =0 or =p-a
Fig. 1a – Longitudinal CORE. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
FR
60
IT
ES
40
DE
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Fig. 2a – Longitudinal CORE based on first pillar only. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
FR
60
IT
ES
40
DE
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Fig. 1b – Longitudinal CORE. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
LU
60
DK
NL
40
UK
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Fig. 2b – Longitudinal CORE based on first pillar only. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
LU
60
DK
NL
40
UK
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Fig. 1c – Longitudinal CORE. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
PL
60
LV
SK
40
HU
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Fig. 2c – Longitudinal CORE based on first pillar only. Age classes: 65-69 / 55-59
Longitudinal CORE
100
80
PL
60
LV
SK
40
HU
20
0
2015
2020
2025
2030
2035
2040
2045
2050
Projected longitudinal CORE
2015
2050
2015
1st pillar only
2050
1st pillar only
FRANCE
64.8
48.6
64.8
48.6
ITALY
82.1
84.9
81
75.2
SPAIN
86
86
86
86
GERMANY
73.4
66.1
71.8
51.7
UNITED KINGDOM
70.8
69.3
34.4
33.9
LUXEMBURG
72.1
77.5
72.1
77.5
DENMARK
67.6
69.2
62.3
52.7
NETHERLANDS
88.2
88.7
42.9
41.7
POLAND
89.8
52.9
89.8
52.9
LATVIA
49.7
59.7
49.7
59.7
HUNGARY
68.5
76
67.2
64.1
SLOVAKIA
65.5
58.5
65.5
58.5
Summary
• CORE high and stable in IT, ES, NL (around
85%).
• Lower but stable: UK, LU, DK, HU
• Increasing in LT (by 10pp)
• Decreasing in FR, DE, PL, SK to low values
(65% for DE, 60% PL and SK)
Final remarks
• Importance of theoretical RRs and
participation/employment projections in driving
the results
• We find a group of countries with decreasing
projected CORE (DE; LT,FR, SK, PL)