Ageing and the tax implied in public pension schemes: simulations for selected OECD countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. A key figure which can be applied to measuring inter-generational imbalances involved in existing public pension schemes is given by the "implicit tax" that is levied on each generation's life-time income through participation in these systems. The implicit tax arises from the fact that, quite generally, pension benefits received fall short of actuarial returns to contributions (i.e., "explicit" social security taxes) paid while actively working. If, in spite of large-scale demographic ageing, public pension schemes are continued to be run based on current rules, implicit tax rates will sharply increase for generations who are currently young when compared to those who are already approaching retirement. In the paper, this will be illustrated for the cases of France, Germany, Italy, Japan, Sweden, the UK, and the US. The results are based on simulations covering representative individuals in all age cohorts born from 1940 to 2000. At the same time, there are striking differences across countries regarding both the level of implicit taxes and their time paths over successive age cohorts, which can be attributed to different ageing processes as well as to different institutional features of national pension systems. In addition, we are studying the impact of pension reforms that were recently enacted or are currently under way, thus demonstrating how effective the measures taken are in terms of smoothing the inter-generational profile of implicit tax rates. Terms of use: Documents inJEL Classification: H55, J11, D63.

Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?

“…Most authors that have used the concept have not suggested that it be used to compile actuarial balances. Disney (2004), for example, constructs indicators of the tax component of pension programmes, both between and within generations, across a range of OECD countries and time periods, and Fenge & Werding (2004) use the concept of the 'implicit tax rate" to measure intergenerational imbalances in unfunded public pension schemes.…”

Implizite Besteuerung Im Deutschen Sozialversicherungssystem

“…4 Vgl. Fenge/Werding (2003), S. 4. Zur Berechnung der lebenszyklusbezogenen impliziten Steuer in der GRV vgl.…”

Ageing and the welfare state: securing sustainability

“…The pay-as-you-go mechanism as such is 'intergenerationally efficient' in the sense that transforming unfunded pension schemes into funded schemes is impossible without harming at least some generation. The burden involved in ageing can thus be shared in various ways between future generations, the active generation and those in retirement, but it can never be removed (see also Fenge and Werding, 2004). …”