Pensions for Singles and Couples

• 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
• ISSN: 0034-6586; 1475-4991
• DOI: 10.1111/roiw.12106

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.