Eliciting individual preferences for pension reform

Eliciting individual preferences for pension reform

What factors can can affect people’s evaluation of state pension systems?

Pension reform is nowadays in the forefront of the political agenda of many European countries. Using ireland as an example country, this paper analyses the different forces that can affect people’s evaluation of the state pension system. The main focus of the paper is to answer the following questions:

  • what are individual preferences over redistribution by state pension systems?
  • what determines these preferences?

The paper states that individuals’ own characteristics as income and age play a significant role in terms of individual's preferences. Yet, other forces, as altruism and social preferences, may also explain people’s demand for redistribution.

The author's findings show that:
  • poverty and inequality aversion affect individuals’ utility and their demand for redistribution
  • in particular, a higher poverty among the elderly decreases utility at an important degree
  • the level of social contract or party partisanship partly explains individuals’ heterogeneity in their preferences for different kinds of state pension systems
  • social security is supported primarily by self–interested desires on the part of an important proportion of citizens
  • the older the respondent, the more they will choose a higher contribution rate to the public pension system
  • the younger prefer departing from the current state pension scheme
  • the high pension benefit increases utility of the high income group more than of the low income group

In addition, the paper concludes that people’s attitudes regarding the role of state in income redistribution and their opinion about the principles of pension system are important determinants in their evaluation of the state pension scheme.