Longevity, Retirement and Intra-Generational Equity

25 Pages Posted: 12 Jul 2019 Last revised: 23 Jul 2019

See all articles by Svend E. Hougaard Jensen

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Thorsteinn Sveinsson

Central Bank of Iceland

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: 2019

Abstract

We find that segments of society who have shorter life expectancy can expect a lower retirement income and lifetime utility due to the longevity of other groups participating in the same pension scheme. Linking retirement age to average life expectancy magnifies the negative effect on the lifetime utility of those who suffer low longevity. Furthermore, when the income of those with greater longevity increases, those with shorter life expectancy become even worse off. Conversely, when the income of those with shorter life expectancy increases, they end up paying more into the pension scheme, which benefits those who live longer. The relative sizes of the low and high longevity groups in the population determine the magnitude of these effects. We calibrate the model based on data on differences in life expectancy of men and women and find that males suffer from a 10 percent drop in the amount of pension benefits from being forced to pay into the same scheme as females.

Keywords: longevity, pension age, retirement, inequality

JEL Classification: E210, E240

Suggested Citation

Hougaard Jensen, Svend Erik and Sveinsson, Thorsteinn Sigurdur and Zoega, Gylfi, Longevity, Retirement and Intra-Generational Equity (2019). CESifo Working Paper No. 7704, Available at SSRN: https://ssrn.com/abstract=3418024

Svend Erik Hougaard Jensen (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Thorsteinn Sigurdur Sveinsson

Central Bank of Iceland ( email )

Reykjavík
Iceland

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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