The Impact of the Public Pension System on Wealth Inequality. The Distribution of Augmented Wealth in Poland

Public pension wealth is an important component of a household's wealth portfolio. However, because of lack of data, it is usually omitted in the analysis of the wealth distribution. The literature on augmented wealth is focused on developed economies. We use a novel data source (Eurosystem Household Finance and Consumption Survey) to estimate the distribution of public pension wealth and augmented wealth in Poland. The public pension system significantly decreases wealth inequality. Gini index equals 0.5007 for private wealth distribution and 0.3472 for augmented wealth distribution. In comparison with results obtained for other countries, the impact of the public pension system on wealth inequality in Poland is rather strong.Decomposition techniques confirm equalizing impact of public pension wealth on the pension system. The relative contribution of public pension wealth is smaller than its share in the augmented wealth. The marginal effects are negative and statistically significant. Our estimates of social security wealth are based on Eurostat mortality forecasts and take into account the education-related mortality differential. Our sample covers an old-age population because the quality of data on pension entitlements of the working population is too low to be directly used. Therefore our research measure the impact of public pension wealth on wealth inequality among those, who already profit from their public pension wealth. In the case of the working-age population, social security wealth is only a theoretical concept and its estimation is complicated by many non-linearities in the rules determining pension benefits. However, we provide some additional, indicative estimates also on the impact of the public pension system on the whole population using official statistics of Social Insurance Institution. Our additional estimates covering the whole population also confirm the equalizing impact of the public pension system.To assess the impact of education-related mortality differential on the value of social security wealth exists on an individual level, but diminishes at the household level. The value of social security wealth of males, who completed higher education is about 20% higher if calculated based on mortality rates differentiated by education and gender (in comparison with the value estimates based on mortality rates differentiated only by gender). In the case of women, the education-related difference in the value of social security wealth is smaller. The gap is slightly lower than 10%. The change in the value of measures of inequality of social security wealth is small. At the household level, the gap is negligible. The impact of education-related mortality differential is limited by the demographic structure of our sample. It is important for individuals, who completed higher education, but their share in our sample is too small to significantly affect the distribution of augmented wealth in the sample. Moreover, households are often composed of individuals with different education levels