Indexing Public Pensions in Progress to Wages or Prices [article]

Initial public pensions are indexed to the economy-wide average wages, but pensions in progress are indexed to prices, average wages or their combinations -varying across countries and periods. We create a simple overlapping cohorts framework to study the properties of indexing pensions in progress -emphasizing a neglected issue: close wage paths should imply close benefit paths even at real wage shocks. This robustness criterion of an equitable pension system is only satisfied by wage
more » ... ed by wage indexing, which in turn requires the adjustment of the accrual rate. To minimize the redistribution from low-earning short-lived citizens to high-earning long-lived ones, progression should be introduced.
doi:10.24425/cejeme.2020.133720 fatcat:uncqns4iwzgazd5v4qqn6zhgm4