The impact of increasing pensions on reducing regional inequalities in health and wellbeing

Abstract Amidst rapidly ageing populations and related financial pressures in many countries, there is a growing need for evidence-based solutions to develop equitable pension systems that help support health and wellbeing in later life. Using German reunification as a unique natural experiment, we aim to quantify the effect of increases in pension generosity on their capacity to reduce regional inequalities in self-reported health and life satisfaction in pensioner populations. Our data comes from a nationally representative German Socio-Economic Panel survey covering 1992-2005. The analysis sample includes a cohort of retired individuals (aged 65+) at the time of reunification, resulting in 8,092 observations. We use linear fixed effects models to quantify the within-person association between pensions and health and life satisfaction in East Germany - where pensions became more generous after reunification - vs. West Germany. We find a small but robust effect of increasing pension income on life satisfaction, such that for every 10% increase in pension income, life satisfaction increases by 0.02 points on a 0-10 scale [95% CI: 0.01;0.03] in East vs. West Germany, with effects stronger for men and those with at least school education. We find no effects on health satisfaction. Our results are robust to alternative model specifications and for accounting for health-related attrition. Our findings suggest that increasing pension generosity could be an effective policy tool for reducing geographical inequalities in wellbeing in later life. This needs to be considered in terms of future state pension policies, particularly in countries with regionally imbalanced economies. Key messages • Increasing pension generosity can improve life satisfaction in later life. • Pensions is an important policy tool for promoting healthy ageing.