July 2016

IZA DP No. 10060: On the Heterogeneity in Longevity among Socioeconomic Groups: Scope, Trends, and Implications for Earnings-Related Pension Schemes

published in: Global Journal of Human Social Sciences-Economics, 2017, Volume 17, Issue 1: 33-58

Heterogeneity in longevity between socioeconomic groups is increasingly documented for developed economies and is reviewed in the paper. Heterogeneity in life expectancy disaggregated by main socioeconomic characteristics – such as age, gender, race, health, education, profession, income, and wealth – is sizable and has not declined in recent decades. The prospects for future decline are not strong, either; perhaps even to the contrary. As heterogeneity is closely linked to income or earnings (i.e., the contribution base of earnings-related social programs such as pensions) and as heterogeneity is empirically sizable, the result is major implicit taxes for some groups – particularly the less educated and low earners – and major subsidies for other groups – particularly highly educated individuals and high-income earners. The implications for pension reform and scheme design are substantial as taxes/subsidies counteract the envisaged effects of (i) a closer contribution-benefit link, (ii) a later formal retirement age to address population aging, and (iii) more individual funding and private annuities to compensate for reduced public generosity.