WP 9 Maintaining Living Standards After Retirement

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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 Kota (Slovak Academy of Sciences)
• Katarzyna Pietka (CASE)

Bruxelles, 20 October 2008
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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

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Plan of the Talk

• Theoretical framework
• Definition of indicators
• Data-based analysis
• Projection analysis

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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.

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A COmprehensive REplacement rate (CORE)

• Compare individuals living standards when active
  and when retired
• Approximate living standards with disposable
  income

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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

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A cross-country analysis based on CORE

• Actual CORE
• cross-country analysis based on ECHP data (I, DK,
  F, DE, UK, LUX, NL, ES)
• country-specific analysis for PL, SK, HU
• Projected CORE all countries LV

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Actual CORE cross-country

• Use ECHP data to study various issues standard
  vs comprehensive replacement rates individual vs
  family based rates
• Disposable income pension income from public and
  private schemes, income from work, unemployment,
  disability, survivor, housing,and other social
  benefits.
• Sample 1996-2000 (wave 3-8)

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Main results

• Median individual RR vs median individual CORE
  CORE is higher than RR in all countries (range
  4-17 pp)
• Gender differences attenuated when computing
  CORE (wrt RR)
• Family disposable income higher median CORE in
  all countries.

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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
  65-69 vs 55-59
• Longitudinal or cross-sectional

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• 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

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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)

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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)