Reforming EU Pension Systems: Equity and Sustainability in Conflict

Miguel Sanchez-Romero, TU Wien and IIASA
David Zettler, TU Wien, Institute of Statistics and Mathematical Methods in Economics
Alexia Fürnkranz-Prskawetz , TU Wien

As the heterogeneity in life expectancy by socioeconomic status increases, many pension systems imply a wealth transfer from short- to long-lived individuals. Various pension reforms aim to reduce inequalities that are caused by ex--ante differences in life expectancy. However, these pension reforms may themselves induce redistribution effects. We have implemented a dynamic General Equilibrium-OLG model populated by heterogeneous individuals that differ by gender, education, family size, labor supply, health status, and life expectancy. Life expectancy at the individual level is therefore determined by life cycle events that are heterogenous across the population. In addition we also allow for exogenous individual specific health and labor market shocks. Within this framework, we study various pension reforms across different socioeconomic groups taking into account that pension reforms themselves induce individual level reactions. We analyse pension reforms across various dimensions (at the macro and micro level) and discuss the results for different socioeconomic groups, especially by gender and skill level. Our model is calibrated to four EU countries (Austria, Germany, Italy and Poland). These countries capture different pension systems (DB vs. DC systems) and different pension generosity.

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 Presented in Session 42. Flash Session Work, Family Roles and Social Participation in Later Life