The treatment of couples by the pension system: survivor’s pensions and pension splitting

This paper examines the features of two systems for allocating pension rights accrued as a spouse: the survivor's pension and pension splitting. The survivor's pension enables the surviving spouse to maintain his/her living standard after the other spouse's death: under a non-means-tested system, the higher the survivor's own pension with respect to that of the deceased spouse, the higher his/her standard of living (or the smaller its decline) after widowhood. This means that the income of widowers is generally higher than that of widows. A pension splitting system, on the other hand, guarantees the same income to both widows and widowers. In the event of divorce, pension splitting provides an own pension to each ex-spouse, independently of their subsequent life choices, and partially equalizes men's and women's incomes. But the system penalizes the spouse with the higher income. In the event of death or divorce, equal pension splitting is less costly for the pension system than a non-means-tested survivor's pension. However, it is rarely an attractive option for the pension recipients, women included. Pension splitting at a higher rate (above 50%), whose overall cost to the pension scheme is equivalent to that of the survivor's pension, would be an interesting alternative option