European Pension Systems: A Simulation Analysis

Kenç, Turalay; Perraudin, William

doi:10.1111/j.1475-5890.1997.tb00263.x

“…This issue has not been addressed in the previous simulations, which assume a mandatory retirement age and pay no attention to the existence of early retirement. The endogenous response of retirement to pension reform is considered in Kenc and Perraudin (1997a) partial equilibrium analysis of the distortions induced by the different pieces of the pension regulations. The general equilibrium version of the paper (Kenc and Perraudin (1997b)), however, assumes exogenously fixed retirement ages.…”

Section: Introductionmentioning

confidence: 99%

Endogenous retirement and public pension system reform in Spain

Martín

¹

2010

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All around the world, population aging has spurred developed countries to reform their PAYG pension systems. In particular, delaying legal retirement ages and reducing the generosity of pension benefits have been widely implemented changes. In this paper we assess how successful those policies can be in the case of the Spanish economy, and compare with the results obtained by the already implemented reforms (1997 and 2001). This evaluation is accomplished in a heterogeneous-agents, applied general equilibrium model where individuals can adjust their retirement ages in response to changes in pension rules. We check the ability of the model to reproduce the basic stylized facts of retirement behavior (specially the pattern of early retirement induced by minimum pensions). We then use to model to explore the impact of pension reforms. We find that already implemented changes actually increase the implicit liabilities of the system, while delaying the legal retirement age to 68 may roughly halve the size of the current pension debt.

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“…unrelated to the individual's working history and age) pensions on labor supply. The impact on hours worked is addressed in Kenc and Perraudin (1997a) and has received special attention in the applied general equilibrium literature (Auerbach and Kotlikoff (1987), De Nardi,İmrohoroglu, and Sargent (1999) or Huggett and Ventura (1999)). In contrast, Sheshinski (1978) analyzes the effect on discrete retirement behavior.…”

Section: Introductionmentioning

confidence: 99%

An evaluation of the life cycle effects of minimum pensions on retirement behavior

Jiménez-Martín

¹

,

Martín

²

2007

J of Applied Econometrics

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In this paper we explore the distortions that minimum pensions generate on individual decisions, paying special attention to their impact on retirement behavior. This is done with the help of a stylized life-cycle model, which provides a very convenient analytical characterization of the optimality conditions, and a very easy qualitative exploration of the impact of pension rules on optimal behavior. In this context we show that a standard life cycle model, that does not consider minimum pensions, is unable to fit the data. This anomaly is resolved once the mechanism of the minimum pension is taken into account. We follow two steps in order to quantitatively assess the contribution of minimum pensions to early retirement patterns. We first recovered the preference parameters using the model as the data generating process in a structural econometric estimation. We then simulated the change in the aggregate retirement distribution induced by the minimum pension scheme. We found that 3 out of 4 workers leave the labor force before 65 under the minimum pension scheme, while this ratio is 3 in 5 without it. This result suggests that minimum pensions should be carefully considered in any attempt to reform the Spanish pension system. The same conclusion could be extended to other countries with similar systems.

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An Evaluation of the Life-cycle Effects of Minimum Pensions on Retirement Behavior

Jiménez-Martín

¹

,

Sánchez²

2004

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In this paper we explore the distortions that minimum pensions generate on individual decisions, paying special attention to their impact on retirement behavior. This is done with the help of a stylized life-cycle model, which provides a very convenient analytical characterization of the optimality conditions, and a very easy qualitative exploration of the impact of pension rules on optimal behavior. In this context we show that a standard life cycle model, that does not consider minimum pensions, is unable to fit the data. This anomaly is resolved once the mechanism of the minimum pension is taken into account. We follow two steps in order to quantitatively assess the contribution of minimum pensions to early retirement patterns. We first recovered the preference parameters using the model as the data generating process in a structural econometric estimation. We then simulated the change in the aggregate retirement distribution induced by the minimum pension scheme. We found that 3 out of 4 workers leave the labor force before 65 under the minimum pension scheme, while this ratio is 3 in 5 without it. This result suggests that minimum pensions should be carefully considered in any attempt to reform the Spanish pension system. The same conclusion could be extended to other countries with similar systems.

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European Pension Systems: A Simulation Analysis

Cited by 3 publications

References 37 publications

Endogenous retirement and public pension system reform in Spain

Endogenous retirement and public pension system reform in Spain

An evaluation of the life cycle effects of minimum pensions on retirement behavior

An Evaluation of the Life-cycle Effects of Minimum Pensions on Retirement Behavior

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