Altruism and fairness in a public pension system

11

where U^k', Y^k', Y^h', Yⁱ', r* and a^k_g are first differences.

Another problem is that eqs. (1) and (3) deal with the knowledge of the individuals about their income
during old age. Typically, individuals’ retirement income consists of a public pension payment
supplemented with a complementary pension payment from a firm-related pension plan. Based on macro
data it is known that in this system more than 80% of the employees are able to reach a pension income
approximately equal to 70% of last earned income. The data reveal, however, that most respondents
(except the elderly) have no idea about the size of their own complementary pension or the partner’s
one. Table 4.3 illustrates this point.

Table 4.3 Complementary pension payments

Apparently, the respondents, and especially the young ones, know little about their future retirement
income. Based on this observation it was decided to use only the public pension benefit as an indication
of retirement income of the young and middle-age respondents. This means that in (2) the old-age
income of the young (jʃ), which is part of Y^y, is determined by the public pension benefit.

4.2 Estimation results

The coefficients of eqs. (3) can now be estimated. One other remark has to be made in advance, though.
Inspection of the data showed that women are underrepresented in the sample, compared to the Dutch
population. In addition to this, it turned out that not all age categories were present as they should be
according to the statistics of the Dutch Central Bureau of Statistics (see also appendix A). These two
deviations in the sample were taken into consideration by applying weighted least squares (WLS) where

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