Pensions for Singles and Couples

Retirement policies often seek to set pensions at levels that enable single and married pensioners to have the same standard of living. The existing literature on consumer equivalence scales provides little assistance in reaching this policy objective, as the estimated scales are both imprecise and...

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Bibliographic Details
Published in:The Review of income and wealth 2014-09, Vol.60 (3), p.480-498
Main Author: Bradbury, Bruce
Format: Article
Language:English
Subjects:
Appropriations and expenditures
Australia
consumer equivalence scales
Consumers
Consumption
Cost and standard of living
D13
Economic models
Equivalence
Expenditure
Household consumption
Households
I38
J14
Pensions
Retirement
Retirement policies
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Summary:Retirement policies often seek to set pensions at levels that enable single and married pensioners to have the same standard of living. The existing literature on consumer equivalence scales provides little assistance in reaching this policy objective, as the estimated scales are both imprecise and reliant upon strong and opaque assumptions. This paper proposes an alternative modeling strategy which has low data requirements and involves the use of detailed, but transparent, assumptions about the extent of joint consumption of particular commodities. These assumptions are embedded in an economic model of household consumption and combined with household expenditure data to calculate consumer equivalence scales. It is estimated that, in 2003–04, Australian couples of Age Pension age who owned their own home needed expenditures between 1.32 and 1.60 times that of a single person. These scales were lower than those used in the pension system.
ISSN:0034-6586
1475-4991
DOI:10.1111/roiw.12106