Abstract
This paper demonstrates that the link between heterogeneity in longevity and lifetime income across countries is mostly high and often increasing; that it translates into an implicit tax/subsidy, with rates reaching 20 percent and higher in some countries; that such rates risk perverting redistributive objectives of pension schemes and distorting individual lifecycle labor supply and savings decisions; and that this in turn risks invalidating current reform approaches of a closer contribution-benefit link and life expectancy-indexed retirement age. The paper suggests and explores a number of interventions in the accumulation, benefit determination, and disbursement stages to address longevity’ heterogeneity.
Highlights
Increased longevity is quite likely one of the most important socioeconomic advances to happen to mankind
This paper demonstrates that the link between heterogeneity in longevity and lifetime income across countries is mostly high and often increasing; that it translates into an implicit tax/subsidy, with rates reaching 20 percent and higher in some countries; that such rates risk perverting redistributive objectives of pension schemes and distorting individual lifecycle labor supply and savings decisions; and that this in turn risks invalidating current reform approaches of a closer contribution-benefit link and life expectancy-indexed retirement age
This paper argues and demonstrates that heterogeneity in longevity by lifetime income is high and often rising; that it translates into an implicit tax/subsidy mechanism with rates in some countries reaching 20 percent and above; that such rates risk perverting redistributive objectives of pension schemes and distorting individual lifecycle labor supply and savings decisions; and that such perversions and distortions risk invalidating or at least diminishing recent reform approaches, those moving to a closer contribution-benefit link and increasing the retirement age
Summary
Increased longevity is quite likely one of the most important socioeconomic advances to happen to mankind. International evidence, currently available only for highly developed countries, suggests that heterogeneity in longevity arises across many socioeconomic dimensions, is often sizable, is becoming more prevalent, and shows few signals of abating in the near future (Ayuso, Bravo, & Holzmann, 2016). In the context of pensions, an earlier paper explored the scope and trend of longevity across documented socioeconomic dimensions of industrialized countries and provided first estimates on the scope of the tax/subsidy effect of heterogeneity, which can reach 20 percent or more in both directions (Ayuso et al, 2016). This section first briefly highlights the key redistributive mechanisms of pension schemes that typically produce a positive welfare economic effect. The last part of this section presents empirical evidence on the scope of the tax/subsidy component for lifetime income, the key socioeconomic factor related to heterogeneity in longevity
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call