Linking Retirement Age to Life Expectancy Does Not Lessen the Demographic Implications of Unequal Lifespans

Jesus-Adrian Alvarez , Interdisciplinary Centre on Population Dynamics, University of Southern Denmark
Søren Kjærgaard, Max Planck Odense Center on the Biodemography of Aging
Malene Kallestrup-Lamb, Institute of Economy, Aarhus University
James W. Vaupel, Max Planck Institute for Demographic Research and Max Planck Odense Center

People live longer and spend more time in retirement than in previous years. This phenomenon jeopardizes the stability of pension systems. Recent reforms aim to alleviate the burden of increasing longevity by linking retirement ages to changes in life expectancy. However, the demographic implications of such linkages are still unknown. In this study we analyse the case of Denmark where the retirement age is linked to changes in life expectancy targeting a period of constant pension payments for 14.5 years. Using high-quality data from the Danish population registers, we explore trends in life expectancy and lifespan inequality after retirement by sex and by socio-economic groups (SES) during the period 1985-2016. Our results indicate that the linkage rule place retirees in a demographic setting where higher uncertainty about the length of life prevails. This pattern is magnified for males from lower SES. We also show that, given the low interest rates prevailing in Denmark, the costs of pensions are highly sensitive to changes in mortality. Increased longevity and unequal lifespans are at the heart of imbalanced pension systems, affecting individuals, societies and financial institutions. This study serves as a reference of the possible implications that might arise not only in Denmark but also in countries experiencing similar pension reforms.

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 Presented in Session 22. Population Dynamics and Mortality