Changes in the economic well-being following the death of a spouse :
Are public survivor pensions sufficient ?
Some evidence for France
Carole Bonnet (INED)
Jean-Michel Hourriez (Crest, INSEE)
CERP, 18-19 September 2008
Background (1)
The loss of a spouse is a shock that could jeopardize financial security during retirement
High poverty rates of widows during the 60’s and 70’s, in a context of high poverty rates of the elderly
increase in the rate of the survivor pension (a part of the pension of the (married) deceased spouse provided to the surviving one) :
From 50 % to 52 % in 1982 and to 54 % in 1995 It has been decided this year to increase this rate to 60 % in 2011
Background (2)
And yet, poverty has sharply decreased among the elderly including widows.
Even if their living standard is still lower than those of married couples (by 16 %)
So, some questions are raised : Does this less well-off situation of widows result from a not
generous enough survivor pension? Or from structural effects ? In a general context of budgetary pressures, do we need to
increase the generosity of survivor benefit ? Survivor pensions represent 14 % of the total pension expenditures
in 2006 (ie 30 billions €)
Outline
In spite of these questions and the financial importance of survivor pensions, no work has been made on this topic, at least in France
Two approaches to study the changes in the economic well-being following the death of the spouse
A theoretical perpective : some calculation on simple representative individuals
An empirical analysis : data used and results
Survivor pension rules (French pension system)
Scheme of the deceased spouse
Survivor pension rate
Means-testing
Civil servant
50% No
Private sector
Basic scheme 54% Yes (own pension + survivor pension <
1392 € / month)
Complementary schemes
60% No
Changes in the living standard : a theoretical perspective (1)
Situation : Married retired couple. Pensions are the only ressources
Living standard before the spouse’s death :
• Living standard after the spouse’s death :
Change in the living standard (N2/ N1) :
and x=Ps/Pd
cu
PPN SD
11
1
1
x
ratexcu
SD PPrateN 2
Pd : pension of the deceased spousePs : pension of the surviving spouse Cu : consumption unit (OECD-modified scale)N : living standards
Rate : survivor pension rate
0,6
0,7
0,8
0,9
1,0
1,1
1,2
1,3
0 0,5 1 1,5Ratio Ps/Pd
N2/
N1
rate=50 %rate=60 %rate=54 %
Changes in the living standard : a theoretical perspective (2)
No means-test – (Civil servant pension scheme – rate = 50%)
Changes in the living standard : a theoretical perspective (3)
0,7
0,8
0,8
0,9
0,9
1,0
1,0
1,1
1,1
0 500 1000 1500 2000 2500 3000
Survivor's own pension (€ per month)
N2
/ N
1
Deceased spouse - Mean PensionDeceased spouse - High Pension
Introduction of a means-test – Private worker scheme
Threshold of the means-test : 1392 € / month
Changes in the living standard : a theoretical perspective (4)
0,7
0,8
0,9
1,0
1,1
0 500 1000 1500 2000 2500 3000
Survivor's own pension (€ per month)
N2
/ N
1
Deceased spouse - Mean Pension
Deceased spouse - High Pension
Changes in the living standard : an empirical analysis (1)
Data used Perfect data : panel data on income with reliable income
dynamics
Income Tax Surveys, 1996-2001
Result of the matching of the Labour Force Surveys and Income tax :
The Labour Force Survey is a rotating panel survey (one third of the sample is replaced each year) two waves of three years panel data
Two different approaches : longitudinal and cross-sectional
Changes in the living standard : an empirical analysis (2)
Marital status
Average living standard Median living standard
€/cu per year Index €/cu per year Index
Women and men, aged 65 and over
15 848 100 (ref) 13 783 100 (ref)
Women, aged 65 and over, living alone
Widowed 13 333 84 11 963 87
Divorced 13 074 82 11 859 86
Single 14 419 91 13 076 95
Men aged 65 and over, living alone
Widowed 17 726 109 14 530 105
Divorced 15 820 100 13 615 99
Single 11 949 75 10 696 78
Source : Income Tax Surveys 1999-2001
Changes in the living standard : an empirical analysis - longitudinal (3)
t : date of spouse’s death Men Women
Disposable Income(t+1) /
Disposable Income(t-1)
Q1 0,69 0,61
Q2 0,79 0,65
Q3 0,87 0,71
Mean 0,77 (0,04) 0,65 (0,02)
Living standard(t+1) /
Living standard(t-1)
Q1 1,04 0,92
Q2 1,18 0,98
Q3 1,31 1,06
Mean 1,17 (0,05) 0,97 (0,03)
Sample 45 102
Source : Income Tax Surveys 1998-2001
Changes in the living standard : an empirical analysis - longitudinal (4)
Variables Parameters
Constant 1.279*** (0.446)
Deceased spouse’s status
Public sector employee -0.0149 (0.505)
Private sector employee Ref.
Self-employed -0.862* (0.521)
Share of wife’s pension in the total household pension (t-1)
-2.837** (1.296)
Sample size 102
Probability to experience a decrease in the living standard after the spouse’s death
Logit regression
Source : Income Tax Surveys 1998-2001
WomenAv. : 0,84 =Med : 0,86 =
MenAv. : 1,06 =Med : 1,05 =
0,92 0,91
1,15 1,23
0,97 0,94 1,00 0,95
0,90 1,02 0,87 0,98
Changes in the living standard : an empirical analysis– cross-sectional (5)
nerwidowandcouple
coupleinerwidown
ncouple
nerwidowandcouple
ncoupleinerwidow
nerwidow
ncouple
nerwidow
nMnM
nMnD
nM
nMnM
nMnD
nD
nM
nD
N
N
N
N
N
N
N
N
)2()1(
)1()1(
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)2()1(
)1()1(
)1(
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WomenAv. : 0,84 =Med : 0,86 =
MenAv. : 1,06 =Med : 1,05 =
0,92 0,91
1,15 1,23
0,97 0,94 1,00 0,95
0,90 1,02 0,87 0,98
Changes in the living standard following a spouse’s death : Decrease for women : between – 8 and –2 % (on av. and median) Increase for men : between + 15 and + 23 % (on av. and median)
French survivor pension system nearly succeed in maintaining the living standard of women following the spouse’s death.
Only on average. Some women experience a drop in their living standard, especially those without an own pension.
For men, the living standard is almost always higher after the spouse’s death.
Different rules for civil servants and private workers achieve the same results on the maintain of living standard
Discussion and conclusion (1)
One element not discussed today but in the paper (and important)Does OECD-modified equivalence scale fits to widows ?
Consumption structure of elderly people is different In general, widows do not adjust their housing consumption after the
death of a spouse The income needed by the surviving spouse to maintain her living standard could be higher
Increased needs of the surviving spouse : deteriorated health status for example
It could take some time to the surviving spouse to adapt to the new situation
Discussion and conclusion (2)
Some further investigations : “Theoretical” investigations :
What kind of formula could be used to compute the survivor benefit to maintain the living standard for all the situations ?
Increase in the survivor pension rate but modification of the means-test
Empirical resultats : Increase the sample size : Income Tax Surveys from 2002 to 2006 Who falls below the poverty threshold after the spouse’s death ?
Discussion and conclusion (3)
Role of wealth : do households for whom the death of a spouse means a decrease in the living standard of the surviving spouse hold more wealth or different type of assets than the others ?
Financial wealth in Income Tax Surveys is not well reported : only taxable wealth. For example, not life insurance.
Use Wealth survey
Discussion and conclusion (4)