The Replacement Rate: An Imperfect Indicator of Pension Adequacy in Cross-Country AnalysesReport as inadecuate




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Social Indicators Research

, Volume 126, Issue 1, pp 99–117

First Online: 10 February 2015Accepted: 31 January 2015DOI: 10.1007-s11205-015-0892-y

Cite this article as: Chybalski, F. & Marcinkiewicz, E. Soc Indic Res 2016 126: 99. doi:10.1007-s11205-015-0892-y

Abstract

Pension systems are usually evaluated from the perspective of two basic criteria: pension adequacy and financial sustainability. The first criterion concerns the level of pension benefits and protection of the elderly from poverty. The second criterion applies to financial liquidity. This paper is primarily of methodological nature. We discuss the problem of measuring pension adequacy, focusing mainly on the replacement rate, which, defined in a number of ways, is the most common measure of pension adequacy. However, as we argue in this paper, it covers only one of its dimensions, namely consumption smoothing. Meanwhile, an equally important dimension, often discussed in the literature and included in most definitions of pension adequacy, is protection of old-age pensioners from poverty. Accordingly, we have proved the thesis that the replacement rate is not a sufficient measure of broadly understood pension adequacy in cross-country studies. Consequently, we have proposed alternative or possibly complementary measures called the synthetic pension adequacy indicators SPAI1-3, defined in basic form as a quotient of relative median income and the at-risk-of-poverty rate. These indicators provide for both the above-mentioned dimensions of adequacy and, according to statistical analysis, also represent them very well. Moreover, the indicators, calculated separately for men and for women, enables evaluation of the third dimension of pension adequacy, namely gender-related differences in pension adequacy.

KeywordsPension Retirement Consumption smoothing Replacement rate Income  Download fulltext PDF



Author: Filip Chybalski - Edyta Marcinkiewicz

Source: https://link.springer.com/







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