Occupation-based inequalities in retirement-aged Filipinos: evidence from the retirement consumption puzzle
Date
2025-05-30
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Abstract
The retirement consumption puzzle refers to the unexpected decline in consumption following retirement, which contradicts the consumption-smoothing behavior predicted by the traditional Life Cycle Hypothesis. While existing literature attributes this drop to factors such as the substitution of food expenditures with home production, declines in work-related expenses, lack of retirement planning, and health shocks, most studies focused on developed countries. This study extends the discourse to a developing country context by examining the case of the Philippines, where social protection schemes like SSS and GSIS are not universal. Using a regression discontinuity design, we test for significant changes in household expenditure at potential retirement ages and find no population-level consumption drop, despite clear changes in employment and pension uptake at age 60. Disaggregating by occupation, however, we find significant consumption drops among elderly household heads in Skilled Agricultural, Forestry and Fishery Workers and Elementary Occupations groups that are largely rural, low-income, and less educated. We expand the regression discontinuity model accounting for age, income demographic factors and pension income to simulate the expenditure effects of retirement and find that the most common sample household with heads working in Skilled Agricultural, Forestry and Fishery Workers and Elementary Occupations need ₱8,867.60 and ₱7,189.52 additional pension per month respectively to maintain pre-retirement consumption levels. Given these results, we urge policymakers to develop targeted, occupation-specific measures to assist vulnerable groups in accessing social protection, as expanding access to low-cost pension schemes can help promote equitable retirement outcomes and ensure consumption stability among the most economically insecure elderly Filipino household heads.
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Retirement Consumption Puzzle, Consumption Smoothing, Occupation-based Inequality, Pension Coverage, Regression Discontinuity Design