Pension generosity and old age poverty in OECD countries

Pension adequacy is getting more weight in international organizations’ pension recommendations (OECD, EU), as elderly poverty remains one of the pressing problems. However, comparative studies on the relationship between pension generosity and old age poverty are rare so far. In this paper, we seek to address this gap in research and ask, what is the role of pension benefit generosity in preventing elderly poverty? This study provides a comparative empirical assessment of how old age poverty relates to levels of pension benefits and generosity of the public pension system in 14 advanced OECD welfare states in the period of 1980-2010. We focus on the role of public mandatory pension provision of mainly first tier schemes and utilize data on pension replacement rates and generosity provided by the Comparative Welfare Entitlement Dataset CWED2. In order to address endogeneity issues, we devise two complementary
research designs — Error Correction Models (ECMs) and Instrumental Variables (IVs).

At this early stage of the project, we do not have definitive results to present yet. Instead, we would especially like to discuss some conceptual issues on how pension generosity in terms of replacement rates may affect elderly poverty, and what elements of public pensions are particularly important for preventing and reducing poverty.