How Does Mortality Contribute to Lifetime Pension Inequality? Evidence From Five Decades of Swedish Taxation Data

Abstract

As with many social transfer schemes, pension systems around the world are often progressive: individuals with lower incomes receive a higher percentage of their income as a subsequent pension. On the other hand, those with lower earnings have higher mortality and thus accumulate fewer years of pension income. Both of these opposing factors influence the progressiveness of pension systems. Empirical efforts to disentangle the effects of mortality inequality on lifetime pension inequality have been scarce. Using Swedish taxation data linked with death registers for 1970-2018, we study how education and preretirement earnings relate to lifetime pensions from age 60 onward and how mortality inequalities contribute to overall inequalities in lifetime pensions. The results show that a progressive replacement structure and mortality differences contribute to the overall distribution of pension payments over the life course. Up to one quarter of lifetime pension inequality is attributable to the greater longevity of socially advantaged groups-particularly among men. Hence, mortality inequalities are an important determinant of the overall degree of between-group income transfers in a pension system, but they are not as important as inequalities in prior earnings.

Keywords: Education; Life expectancy; Mortality inequality; Pension progressivity; Retirement.