Robbing Peter to pay Paul? A Box Jenkins analysis of the future of the

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: By isolating and forecasting the trend in two key variables this paper analyses the future plausibility of the current UK pensions system. Box Jenkins methods (1970, 1976, 1994) are applied to UK post-war government pensioner expenditure and population over 65. Conclusions are made with particular reference to the recent reports of the pensions commission who recommended a drastic reorganization of pensions in the UK. The demographic forecasts are shown to be very close to the predictions made by the pensions commission which both demonstrates the applicability of Box Jenkins methods to pension modelling problems and provides support for the conclusions reached by the commission, including a steady increase in retirement age. The generated forecasts are uniformly higher than the population predictions made by the government actuary’s department which provides further support for a wide range of academic work demonstrating governmental underestimation of UK population. Analysis of government pension expenditure provides forecasts that do not contradict with the modelling carried out by Turner. Therefore the Box Jenkins analysis of two key variables – pensioner population and government pensioner expenditure – has corroborated the forecasting work carried out by the pensions commission and provided support for their wide ranging conclusions.

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