Reform and Backlash to Reform: Longevity Adjustment of the Retirement Age
Co-authors: Thorsteinn S. Sveinsson and Filipe Vieira
Abstract: Using a general equilibrium model with overlapping generations (ad modum Blanchard, 1985), endogenous labour supply and a pay-as-you-go public pension system, this project studies some macroeconomic and distributional effects of projected increases in life expectancy. Specifically, we investigate the potential of a retirement reform where the statutory retirement age and/or pension benefits are indexed in line with changes in longevity. We focus on the extent to which the positive effect on the supply of labour due to a higher retirement age might be offset by a lower supply of labour on the intensive margin. In fact, retirement reforms designed to increase labour supply at the extensive margin might well simultaneously reduce labour supply at the intensive margin. This backlash to retirement reform requires the statutory retirement age to increase more than proportionally to changes in longevity in order to compensate for endogenous responses of the intensity of labour supply. Various benefit schemes are analysed which allows for the determination of the appropriate pension response to increased longevity. Benefit schemes are found to be capable of mitigating the backlash effect on labour supply. The robustness of our results is checked against alternative model specifications and calibrations relevant to an economic region such as Europe.
Occupational Pensions, Aggregate Saving and Fiscal Sustainability: Evidence from Denmark
Co-authors: Jan V. Hansen and Peter Stephensen
Abstract: The occupational pension system in Denmark has had major macroeconomic effects. In this project we focus on saving, fiscal sustainability and intergenerational equity. Specifically, our aim is to study the sensitivity of macroeconomic and distributional outcomes to (a) the degree to which public transfer payments are indexed to the wage rate net of contributions to the occupational pension system; (b) asymmetries in the tax treatment of capital income obtained as part of the occupational pension system compared to personal capital income; and (c) the extent to which the occupational pension saving is an imperfect substitute to private savings.
The Danish Economy in a Global Context
Co-authors: Torben M. Andersen, Jan Bentzen, Valdemar Smith and Niels Westergaard-Nielsen
Abstract: This book provides a broad and non-technical introduction to developments, institutions and policies in Denmark with a focus on economic issues. The text is intended for a course giving a broad introduction to the danish economy or as a descriptive supplement to more theoretical courses. The book is structured such that it can be used both in its entirety and as a selection of separate chapters read independently. The book carefully explains economic jargon and it can therefore also be used by students of other subjects than economics wanting a broad and coherent introduction to key aspects of the Danish economy.
The Danish Pension System: Design, Performance and Challenges
Co-authors: Torben M. Andersen, Niels Lynggaard Hansen and Jesper Rangvid
This book focuses on the Danish pension system, which has attracted a lot of international attention in recent years. The system is highly ranked in global comparisons, and it has been seen as a role model for how to achieve good coverage, provision of adequate benefits and not least for its contributions to keep fiscal policy on a sustainable path.
The book project aims at describing the Danish pension system in some depth providing the first coherent overview of the entire system including its design and history. It explains major policy reforms and regulations that have led to a sustainable pension system that is set to serve the Danish economy well in the future, and where a large proportion of Danes can look forward to a retirement with a standard of living commensurable with what they experienced during their work life.
It covers also pension plan designs, in particular the gradual transition from guaranteed-interest products towards market-interest products, and investment policies of pension funds, including the increase in alternative investments as a response to the low-interest environment. Regulatory issues including solvency 2 and the governance of pension institutions are also dealt with as well as the long-term sustainability of the system.
The pension system must address several, to some extent contradictory, objectives by providing basic income protection, incentivize private pension savings and ensure long-run sustainable public finances. In the Danish case this is dealt with in a multi-pillar pension system combining public and private provision of pension incomes. Over time, occupational and other private pension savings increase in coverage and size and relieve the pressure on public finances. Yet, public pensions will also in the future have an important role.
(top) Last updated by: Dominik Michael Thomas Rappe 27/11/2019