Is a handful of old tricks better than a sackful of new ones? Generations of research and post-retirement poverty in the European Union

M. Azhar Hussain and Olli Kangas

Working papers 109, 2016

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Three generations of welfare state research

• In welfare state research, it is customary to speak of generations of research:• 1st social expenditure; • 2nd social rights;• 3rd the public-private mix in pension protection.

• The aim of the study is to analyze to what extent the three generations are linked to cross-national differences in old-age poverty.

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Data sources

• Data from various sources: • 1st generation expenditure analyses: Eurostat and OECD. • 2nd generation pension generosity:

Comparative Welfare Entitlements Dataset and Social Citizenship Indicators Program.

• 3rd generation data on collective supplementary pensions: the OECD.

• Post-retirement poverty: EU Statistics on Income and Living Conditions (EU-SILC)

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The picture of generosity of pension schemes depends on the measurement 1st generation: expenditure-based approach

• Aggregate replacement rate: Average pension / average wage, %

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The picture of generosity of pension schemes depends on the measurement. 2nd generation: social rights -based approach

• Minimum pension: Minimum / average wage, % (net)

• Maximum pension: Maximum / average wage, % (net), top-coded to 150%

• APW pension:Pension to average paid worker, pension / income, % (net)

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The picture of generosity of pension schemes depends on the measurement. 3rd generation: the public-private changes the picture

• The picture of the generosity of pension schemes changes if we instead of legislated pensions take into consideration the impact of collective pensions, e.g. Finland performs well in terms of legislated pensions (3A) but tends to lag behind in terms of total pension generosity (3B).

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Generations and old age poverty in terms of 40% and 50% poverty line (y-axis = odds rates, France = 1; demographic factors controlled for)

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Generations and old age poverty in terms of 60% and 70% poverty line (y-axis = odds rates, France = 1; demographic factors controlled for)

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Conclusions

• The strength of the 1st generation expenditure-based analyses lies in their objectivity. • The approach displays the strongest association to

the outcome. • In that sense the old trick is better than the new ones.

• The analysis of legislated social rights (2nd generation) shows who gets what, and how much, at least in principle.

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Conclusions

• However, there are problems in the 2nd generation approach:• Changes and differences in taxation lead to biased

comparisons between countries and across time• Calculated rights for typical cases may not be realized

• Public-private mix, 3rd generation: • The expansion of private pensions may jeopardize social

fairness• Skewed distributional effects of private pensions not that

problematic in countries with universal and generous basic pensions