Means Testing Public Pensions under Population Ageing

Means testing of public pensions facilitates the aims of containing pension expenditures by governments and of directing pension payments to those senior individuals most in need. In this project, we apply a lifecycle growth model to analyse the effects of means-tested public pensions under different population ageing scenarios. We consider the following demographic scenarios: (i) increases in longevity as measured by improved age-specific survival rates; (ii) different rates of population growth arising from changes in fertility profiles over time; and (iii) changing gradients in mortality across different income classes of individuals. The results indicate that more pronounced ageing scenarios together with widening mortality gaps between high- and low-income groups of individuals strengthen the role of means testing in providing sustainable and equitable pensions.