How life-table right-censoring affected the Brazilian Social Security Factor: an application of the gamma-Gompertz-Makeham model

TL;DR

This paper examines how right-censoring in life tables affects Brazil's Social Security Factor and demonstrates that using gamma-Gompertz-Makeham models provides more stable mortality estimates for policy planning.

Contribution

It introduces the application of the gamma-Gompertz-Makeham model to assess the impact of right-censoring on social security metrics in Brazil, offering a more accurate mortality estimation method.

Findings

Official life tables may have negatively impacted retirees' income from 2004 to 2012.

GGM-fitted models provided more stable life expectancy estimates over time.

Using appropriate mortality models can improve long-term social security planning.

Abstract

Automatic Adjustment Mechanisms (AAM) are legal instruments that help social security systems respond to demographic and economic changes. In Brazil, the Social Security Factor (SSF) was introduced in the late 1990s as an AAM to link retirement benefits to life expectancy at the retirement age, with the hope of promoting contributory justice and discouraging early retirement. Recent research has highlighted the limitations of right-censored life tables, such as those used in Brazil. It has recommended using the gamma-Gompertz-Makeham (GGM) model to estimate adult and old-age mortality. This study investigated the impact of right-censoring on the SSF by comparing the official SSF and other social security metrics with a counterfactual scenario computed based on fitted GGM models. The results indicate that from 2004 to 2012, official life tables may have negatively impacted retirees' income, particularly for those who delayed their retirement. Furthermore, the GGM-fitted models' life expectancies had more stable paths over time, which could have helped with long-term planning. This study's findings are significant for policymakers as they highlight the importance of using appropriate mortality metrics in AAMs to ensure accurate retirement benefit payments. They also underscore the need to consider the potential impacts of seemingly innocuous hypotheses on public action outcomes. Overall, this study provides valuable insights for public planners and policymakers looking to enhance the effectiveness and fairness of social security systems.