The Impact of Pension Policy on Older Adults' Life Satisfaction

Abstract

This study assesses the influence of old-age pension policy on older adults' life satisfaction, and examines factors that shape this relationship. It theorizes that two distinct dimensions capture variation in the type of pension policy: individualization of risk (as opposed to socialization, or pooling, of risk) and redistribution of resources (that is, poverty prevention through income redistribution mechanisms such as non-contributory pensions). To empirically evaluate the presence of these two dimensions and to assess their influence of life satisfaction among older adults, this study analyzes data for 126,560 adults age 45 and over living in 91 countries over the period 1981-2008. Using principal component factor analysis, it finds support for the two-dimensional model of pension policy. Next, using three-level hierarchical linear regression, this study assesses the effects of pension policy individualization and redistribution on life satisfaction, generating three additional major findings. First, redistribution increases life satisfaction, but individualization--on average--has no significant effect on life satisfaction. Thus, the potential impact of individualization (whether positive or negative), and of the associated increased risk, choice, and opportunities for return, has been clearly overstated in theoretical debates on pension policy privatization. Second, the relationship between pension policy and life satisfaction is contingent on the macro-social context. Specifically, individualization that takes place in more affluent societies has beneficial impact on life satisfaction, while individualization unfolding in contexts of material scarcity has detrimental impact on life satisfaction. Further, the overall beneficial effects of redistribution on life satisfaction are substantially higher in the context of traditional cultures and lower in the context of secular-rational cultures. A third finding is that governmental commitment to social security (i.e., government expenditures on social security as a percentage of total government expenditures) also shapes the relationship between the type of pension policy and life satisfaction: Higher government commitment to social security substantially improves the life satisfaction outcomes of individualization. Findings from this study are used to integrate and advance theory on comparative public policy and the larger macro-social context shaping subjective well-being. Policy implications for pension reform are discussed, highlighting redistribution of resources and alleviation of need as more efficient avenues to increase older adults' life satisfaction than privatization or pooling of risk.