Template-type: ReDIF-Paper 1.0
Author-Name: Brown, Alessio J.G.
Author-Email: brown@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University, Global Labor
	 Organization (GLO)
Author-Name: Fraikin, Anne-Lore
Author-Email: fraikin@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University, Global Labor
	 Organization (GLO), and Liege University
Title: The old-age pension household replacement rate in Belgium
Abstract: The objective of the paper is to examine the retirement behaviour of
	 Belgian workers in one-earner households who are automatically granted a
	 more generous old-age pension benefits replacement rate, called the
	 household replacement rate. Following a recommendation of the Belgian
	 Pension Reform Committee, this policy is to be suppressed for new
	 pensioners, except for those receiving the minimum pension. We provide
	 an ex-ante impact evaluation of such reform on both pension
	 sustainability and adequacy measures. Specifically, we test whether the
	 household replacement rate entails a work (dis)incentive mechanism
	 promoting (harming) pension sustainability and furthermore, we analyse
	 the role of the household replacement rate in old-age poverty and
	 inequality measures. To do so, we use the survey dataset SHARE and a
	 discrete time logistic duration model to study the link between
	 retirement and financial retirement incentives created by the social
	 security system. We find that the household replacement rate generates
	 slightly higher retirement incentives through an income effect and we
	 find that the household replacement rate plays an important role in
	 decreasing the elderly poverty rate. Since households with asymmetrical
	 working arrangements are often at the lowest part of the equivalized
	 income distribution, the substantial effect of the household replacement
	 rate on poverty measures is a motive to use such mechanism as a poverty
	 alleviation tool. Nevertheless, we advocate that income redistribution
	 measures should not be tied to a specific household composition and
	 policies such as pensionable earning minima, minimum pension benefits
	 and the inclusion of replacement income periods in the pension benefits
	 calculation effectively serve the income redistribution goal without
	 favouring a certain type of household over another. Overall, despite the
	 positive poverty and distributional aspects of this policy, our analysis
	 supports the reform proposal of removing the household replacement rate.
Classification-JEL: H31, H55, J22, J26, O15
Keywords: retirement, pension policy, Belgium, impact assessment
Series: UNU-MERIT Working Papers
Creation-Date: 20220119
Number: 2022-004
File-URL: https://unu-merit.nl/publications/wppdf/2022/wp2022-004.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2022004