The effect of labour earnings on post retirement income

Purpose: The purpose of this paper is to investigate how changes in the distribution of pre retirement labour earnings affect post-retirement income in the UK. Design/methodology/approach: The authors estimate a PROBIT model and perform a counterfactual simulation to assess the effects of changes in the earnings distributions on pensions in the UK. The paper uses data from the British Household Panel Survey (BHPS). Findings: The distribution of labour earnings before retirement plays a considerable role in the pension distribution of current retirees, particularly for low and medium incomes in the period 1991-2007 for the UK. Improvements in Social Security have lifted many out of poverty; however there is still a gender gap as it is found that the current system of public and private schemes has not substantially improved pension income dispersion among women. On the other hand, changes in labour earning distributions have benefited more poor female pensioners than male. Originality/value: The paper uses BHPS data, which is a longitudinal panel of survey questions made to UK households between 1991 and 2007. The level of detail of such data allows the study of the complete distributions of pre and post retirement income rather than focussing only on some measures of dispersion.