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The Replacement Rate: An Imperfect Indicator of Pension Adequacy in Cross-Country Analyses

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  • Filip Chybalski
  • Edyta Marcinkiewicz

Abstract

Pension systems are usually evaluated from the perspective of two basic criteria: pension adequacy and financial sustainability. The first criterion concerns the level of pension benefits and protection of the elderly from poverty. The second criterion applies to financial liquidity. This paper is primarily of methodological nature. We discuss the problem of measuring pension adequacy, focusing mainly on the replacement rate, which, defined in a number of ways, is the most common measure of pension adequacy. However, as we argue in this paper, it covers only one of its dimensions, namely consumption smoothing. Meanwhile, an equally important dimension, often discussed in the literature and included in most definitions of pension adequacy, is protection of old-age pensioners from poverty. Accordingly, we have proved the thesis that the replacement rate is not a sufficient measure of broadly understood pension adequacy in cross-country studies. Consequently, we have proposed alternative (or possibly complementary) measures called the synthetic pension adequacy indicators (SPAI1-3), defined in basic form as a quotient of relative median income and the at-risk-of-poverty rate. These indicators provide for both the above-mentioned dimensions of adequacy and, according to statistical analysis, also represent them very well. Moreover, the indicators, calculated separately for men and for women, enables evaluation of the third dimension of pension adequacy, namely gender-related differences in pension adequacy. Copyright The Author(s) 2016

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  • Filip Chybalski & Edyta Marcinkiewicz, 2016. "The Replacement Rate: An Imperfect Indicator of Pension Adequacy in Cross-Country Analyses," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 126(1), pages 99-117, March.
    • Handle: RePEc:spr:soinre:v:126:y:2016:i:1:p:99-117
    DOI: 10.1007/s11205-015-0892-y
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    Cited by:

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    3. Ianina Rossi, 2018. "Systematic Determinants of Pensions in Latin America," Documentos de Trabajo (working papers) 0818, Department of Economics - dECON.
    4. Juan-José Alonso-Fernandez & Robert Meneu-Gaya & Enrique Devesa-Carpio & Mar Devesa-Carpio & Inmaculada Dominguez-Fabian & Borja Encinas-Goenechea, 2018. "From the Replacement Rate to the Synthetic Indicator: A Global and Gender Measure of Pension Adequacy in the European Union," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(1), pages 165-186, July.
    5. BALTEȘ Nicolae & JIMON Ștefania Amalia, 2020. "Study Regarding The Effects Of Demographic Transition On Labor Market And Public Pension System In Central And Eastern Europe," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 15(1), pages 158-170, April.
    6. Gaurav Khemka & Yifu Tang & Geoffrey J. Warren, 2021. "The ‘right’ level for the superannuation guarantee: identifying the key considerations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4435-4474, September.
    7. Zarul Khaliff Kamal* & Siti Mardhiah Isa & Ros Idayuwati Alaudin & Noriszura Ismail, 2018. "Adequacy of Retirement Wealth in Malaysia: Spending Behaviour Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 429-435:6.
    8. Florin Cornel DUMITER & Ștefania Amalia NICOARĂ & Marius BOIȚĂ & Erika LOUČANOVÁ & Katarina Repkova STOFKOVA, 2024. "Empirical Study Regarding the Central and Eastern European Countries’ Soundness of Pension Systems. Triangle Assessment: Social, Economic, and Financial Features of Pension Systems," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 105-127, December.
    9. Nicolae Balteș & Ștefania Amalia Jimon, 2019. "The Effectiveness of Pension Systems in Some Countries of Central and Eastern Europe," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 555-561, August.
    10. Geoffrey J Warren, 2022. "Design of comprehensive income products for retirement using utility functions," Australian Journal of Management, Australian School of Business, vol. 47(1), pages 105-134, February.
    11. JIMON Stefania Amalia & BALTES Nicolae & MUNTEAN Neli, 2019. "Social Protection Of Older People And The Structure Of Consumption Expenditure In Countries Of Central And Eastern Europe," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 71(2), pages 103-117, September.
    12. Butt, Adam & Khemka, Gaurav & Warren, Geoffrey J., 2022. "Heterogeneity in optimal investment and drawdown strategies in retirement," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    13. Michal Mešťan & Ivan Králik & Matej Žofaj & Nikola Karkošiaková & Audrius Kabašinskas, 2021. "Projections of pension benefits in supplementary pension saving scheme in Slovakia," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 29(2), pages 687-712, June.
    14. Alicja Jajko-Siwek, 2020. "The Impact of the Flexibilization of Employment Histories on the Pension Adequacy in Poland," Sustainability, MDPI, vol. 12(19), pages 1-16, October.

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