Intergenerational time transfer, retirement and public pensions

Abstract

This paper develops an overlapping generations model with intergenerational transfer of time in the form of grandparenting and pay-as-you-go (PAYG) pension system. The introduction of time transfer allows taking into account child care responsibilities. Under the situation of population ageing, a fall in the fertility rate leads to not only a reduction in contributions to the pension system but also lower childcare responsibilities that increase life-cycle income. Hence, the impacts of demographic changes on old labour decisions and pensions need to be re-examined. I find that in countries with low fertility rates and small pension systems, a fall in fertility rate reduces working time in old age. Consequently, population ageing due to a lower fertility rate always decreases pensions. On the other hand, for countries with high fertility rates and countries with low fertility rates but large pension systems, a decrease in fertility rate reduces retirement age. In these countries, pensions will increase if retirement is elastic to changes in fertility. In all cases, longer life expectancy increases pensions if retirement is relatively inelastic to changes in longevity.