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The risk of ending up poor in old age is shaped at young ages and
it is concentrated among women. Many countries attempt to mitigate
this risk by redistributing income through lifetime-earnings-based
pension systems. Using a quantitative model, we show that
basing redistribution on annual rather than lifetime earnings generates
much better labor market outcomes and leads to a more
favorable distribution of old-age income. Such a system provides
broad employment incentives, particularly for individuals at high
risk of old-age poverty, and thereby addresses the underlying causes
rather than merely the consequences of old-age poverty.
