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Estimating, and interpreting, retirement income replacement rates

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  • Barrett, Alan
  • Nivakoski, Sanna

Abstract

Longitudinal data are used to estimate retirement income replacement rates of employees in Ireland who transition into retirement over the period 2010 to 2014. The median replacement rate is estimated at 50 per cent, with the mean at 78 per cent. The mean estimate seems high relative to stated policy goals but further analysis shows that the estimate results in part from very high replacement rates at the lower end of the income distribution. This in turn results from the flat-rate nature of social welfare pensions in Ireland. More broadly, Ireland’s pension system is shown to produce a more equal distribution of replacement rates compared to pre-retirement income. However, this leads to a question as to whether policy goals in the areas of pension adequacy should be set with respect to income or consumption levels as opposed to replacement rates.

Suggested Citation

  • Barrett, Alan & Nivakoski, Sanna, 2017. "Estimating, and interpreting, retirement income replacement rates," Papers WP575, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp575
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    References listed on IDEAS

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    1. Olivia S. Mitchell & John W.R. Phillips, 2006. "Social Security Replacement Rates for Alternative Earnings Benchmarks," Working Papers wp116, University of Michigan, Michigan Retirement Research Center.
    2. Andrew G. Biggs, 2011. "Social Security: The Story of Its Past and a Vision for Its Future," Books, American Enterprise Institute, number 6033, September.
    3. Liam A. Gallagher & Fionnuala Ryan, 2017. "A Portfolio Approach to Assessing an Auto-Enrolment Pension Scheme for Ireland," The Economic and Social Review, Economic and Social Studies, vol. 48(4), pages 515-548.
    4. MacDonald, Bonnie-Jeanne & Osberg, Lars & Moore, Kevin D., 2016. "How Accurately Does 70% Final Employment Earnings Replacement Measure Retirement Income (In)Adequacy? Introducing The Living Standards Replacement Rate (Lsrr)," ASTIN Bulletin, Cambridge University Press, vol. 46(3), pages 627-676, September.
    5. Micheál L. Collins & Gerard Hughes, 2017. "Supporting Pension Contributions Through the Tax System: Outcomes, Costs and Examining Reform," The Economic and Social Review, Economic and Social Studies, vol. 48(4), pages 489-514.
    6. Brady, Peter J., 2010. "Measuring retirement resource adequacy," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(2), pages 235-262, April.
    7. Sanna Nivakoski, 2014. "Determinants of Pension Coverage and Retirement Income Replacement Rates – Evidence from TILDA," The Economic and Social Review, Economic and Social Studies, vol. 45(3), pages 299-328.
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    Cited by:

    1. Slaymaker, Rachel & Roantree, Barra & Nolan, Anne & O'Toole, Conor, 2022. "Future trends in housing tenure and the adequacy of retirement income," Research Series, Economic and Social Research Institute (ESRI), number RS143.
    2. O'Toole, Conor & Slaymaker, Rachel, 2020. "Review of the Rebuilding Ireland Home Loan scheme," Research Series, Economic and Social Research Institute (ESRI), number RS104.
    3. Russell, Helen & Maître, Bertrand & Privalko, Ivan, 2019. "The ageing workforce in Ireland: Working conditions, health and extending working lives," Research Series, Economic and Social Research Institute (ESRI), number RS92.
    4. Beirne, Keelan & Nolan, Anne & Roantree, Barra, 2020. "Income adequacy in retirement: Evidence from the Irish longitudinal study on ageing (TILDA)," Research Series, Economic and Social Research Institute (ESRI), number RS107.
    5. Nolan, Anne & Doorley, Karina, 2019. "Financial Literacy and Preparation for Retirement," IZA Discussion Papers 12187, Institute of Labor Economics (IZA).
    6. Nolan, Anne & Whelan, Adele & McGuinness, Seamus & Maître, Bertrand, 2019. "Gender, pensions and income in retirement," Research Series, Economic and Social Research Institute (ESRI), number RS87.

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