fatvegan

Joseph Stiglitz wrote a pretty good paper called Rethinking Pension Reform. I agreed with most of what he said. He suggested that all the equity and efficiency features of privatised superannuation could be achieved with with public pensions and I thought he was probably right. With private pensions the poor are likely to retire earlier because they expect to live longer. A wealthy person with a good doctor and a strong heart will keep working, because they might live until they're 100. Assuming people's relative incomes will be the same in retirement as through their working lives, people are encouraged to work until they've found their own happy balance between length of retirement and annual retirement income (because those two things will be inversely correlated).

There is an implicit indexation to life-expectancy there. As people's life expectancies increase, they'll naturally choose to retire later. The public way of encouraging later retirement is to index the retirement age against life-expectancy. So each generation works for a given proportion of their life, and is in retirement for the rest. Which would work fine if everyone lived the same length of time. But they don't. You could conceivably have a retirement age of 70, because the wealthy had a life expectancy of 85 and the poor had a life-expectancy of 75. The government would pay for the poor to be in retirement for 5 years, and the rich would be in retirement for 15 years. It could even get to the point where the average poor person wouldn't even get a retirement. Particularly as health care becomes more expensive and more privatised, life-expectancy between the rich and poor is likely to diverge.

So I can't see how a public system can emulate that feature of a private system. Only a person themselves has a good idea of how long they're likely to live. It would be tricky for the government to have a different retirement age for different groups of people.

A nice solution would be to equalise incomes so that everyone lived for the same length of time. All these issues would be much simpler then.