How Does Mortality Contribute to Lifetime Pension Inequality? Evidence from Five Decades of Swedish Taxation Data
preprintposted on 26.05.2021, 09:34 by Jiaxin Shi, Martin KolkMartin Kolk
As with many social transfer schemes, pension systems around the world are often progressive: individuals with lower incomes receive a higher percentage of their income as a subsequent pension. On the other hand, it is well known that those with lower earnings have higher mortality and thus accumulate fewer years of pension income. These opposite factors, therefore, both contribute to the progressiveness of a given pension system. Thus far, empirical research efforts to disentangle the effects of mortality inequality on lifetime pension income have been scarce. To close this gap, we use Swedish taxation data linked with death registers from 1970 to 2018 to study how education and pre-retirement earnings relate to lifetime pension income from age 60 onwards, as well as how inequalities in mortality between groups contribute to overall inequalities in lifetime pension income. The results show that both a progressive replacement structure and mortality differentials contribute to the overall distribution of life-course pension payments. A substantial proportion of the total inequality in lifetime pensions can be attributed to the fact that socially advantaged groups live longer, and this is particularly true for men. Mortality differences can explain up to 28% of the lifetime pension benefits between socioeconomic groups. We conclude that inequalities in mortality play an important part in determining the overall degree of between-group income transfers in a pension system.