nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒11‒14
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans By Kandice Kapinos
  2. Norwegian pension reform Defined benefit versus defined contribution By Dennis Fredriksen and Nils Martin Stølen
  3. Planning for Retirement - There is no Substitute By Elena Simonova; Rock Lefebvre; Kevin Girdharry
  4. Incentivos y patrones de retiro en Uruguay By Ignacio Alvarez; Natalia Da Silva; Alvaro Forteza; Ianina Rossi
  5. Spending flexibility and safe withdrawal rates By Finke, Michael; Pfau, Wade Donald; Williams, Duncan
  6. The social economy of ageing : Job quality and pathways beyond the labour market in Europe. By Catherine Pollak; Nicolas Sirven
  7. Age dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners By Blake, David; Wright, Douglas; Zhang, Yumeng
  8. The lifetime gender gap in Italy. Do the pension system countervails labour market outcomes? By Roberto Leombruni; Michele Mosca
  9. Self-employment transitions at older ages in different local labor markets By Hannu Tervo; Hannu Niittykangas
  10. Can the longevity risk alleviate The annuitization puzzle? Empirical evidence from Dutch data By Federica Teppa
  11. Once there were wives and daughters, now there are badanti: Working in home elderly care in Italy is still an informal, unqualified and unrecognised occupation By Giulia Bizzotto; Claudia Villosio

  1. By: Kandice Kapinos
    Abstract: In light of the recent concerns regarding the solvency of Social Security’s Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which resulted in lower pension benefits for many workers. In this study, I investigate how characteristics of the firm’s workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm’s pension plan policy more generally. Using the Longitudinal Employer-Household Data and pension plan data from the Department of Labor/Internal Revenue Service and the Pension Benefit Guaranty Corporation, I found little evidence of workforce age distribution effects on the likelihood of DB plan conversion to a cash balance plan in the 1990s. More generally, I consistently find positive associations between firms with older and more female workforces and defined contribution plans during the same time.
    Date: 2011–11
  2. By: Dennis Fredriksen and Nils Martin Stølen (Statistics Norway)
    Abstract: Norway. The new system fulfils several criteria for a defined contribution scheme. Earnings from all years in work count in the accumulation of entitlements, and an actuarial rule converting the final balance into an annuity is introduced. But the pension system will still be a part of the general public finances and therefore financed pay-as-you-go. And before taking adjustments for increasing life expectancy into account, the level of old age pension benefits is calibrated to the former defined benefit system. The paper shows that given these restrictions it is of minor importance if the new pension system is described as defined benefit versus defined contribution. One modification follows from the treatment of inheritance of entitlements from persons who die before the lower age limit of retirement. The discussion is illustrated empirically by using Statistics Norway’s dynamic microsimulation model MOSART.
    Keywords: Pension systems; pension reform; life expectancy adjustment; microsimulation.
    JEL: H53 H55 J26
    Date: 2011–11
  3. By: Elena Simonova (Certified General Accountants Association of Canada); Rock Lefebvre (Certified General Accountants Association of Canada); Kevin Girdharry (Certified General Accountants Association of Canada)
    Abstract: Retirement planning is often seen as a tool that may assist individuals to successfully accumulate retirement capital. However, the low level of ‘customization’ of the general information on retirement planning may prompt some individuals to oversimplify their approach to retirement savings while discouraging others. Given the already weak propensity of Canadian households to accumulate retirement savings, this paper seeks to accentuate the importance associated with – and the complexity involved in – choosing the mix of savings instruments for accumulating retirement capital. The analysis shows that relying on private retirement savings continues to be of high importance for Canadian households. Some individuals may achieve the best saving outcome through the strategy that often would not be viewed as “saving for retirement”; however, comparing the outcomes of different savings options is challenging. Considering planning for retirement in broader terms than just setting aside a portion of monthly income may be beneficial as the narrow focus may overlook some important strategies of accumulating retirement capital.
    Keywords: planning for retirement, Canadain retirement income system, savings instruments, funding postion of pension plans, household savings, registered retierment savings plans, tax-free savings accounts, retirement savings, retirement income,
    JEL: D14 E21 G23 G28 H21 H24 H31 H55
    Date: 2011–11
  4. By: Ignacio Alvarez; Natalia Da Silva; Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Ianina Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: We estimate indicators of incentives to retire in a sample of individuals affiliated to the main Uruguayan social security program and we assess their impact on retirement and pension claims observed between 1996 and 2004. The implicit tax on work in this population is high compared to other countries for which similar studies have been conducted, particularly so when the indicator is computed for individuals covered by the institutional act 9. The reform law passed in 1995 increased the incentives to work. However, we do not find the expected effects of the incentive indicators on retirement.
    Keywords: Incentives to retirement, Social Security
    JEL: H55 J14 J2
    Date: 2011–09
  5. By: Finke, Michael; Pfau, Wade Donald; Williams, Duncan
    Abstract: Shortfall risk retirement income analyses offer little insight into how much risk is optimal, and how risk tolerance affects retirement income decisions. This study models retirement income risk in a manner consistent with risk tolerance in portfolio selection in order to estimate optimal asset allocations and withdrawal rates for retirees with different risk attitudes. We find that the 4 percent retirement withdrawal rate strategy may only be appropriate for risk averse clients with moderate guaranteed income sources. The ability to accept greater shortfall probabilities means that risk tolerant investors will prefer a higher withdrawal rate and a riskier retirement portfolio. A risk tolerant client may prefer a withdrawal rate of between 5 and 7 percent with a guaranteed income of $20,000. The optimal retirement portfolio allocation to stock increases by between 10 and 30 percentage points and the optimal withdrawal rate increases by between 1 and 2 percentage points for clients with a guaranteed income of $60,000 instead of $20,000.
    Keywords: retirement planning; utility maximization; retirement spending goals; safe withdrawal rates
    JEL: G11 C15 D14
    Date: 2011–11–05
  6. By: Catherine Pollak (IRDES et Centre d'Economie de la Sorbonne); Nicolas Sirven (IRDES)
    Abstract: This article analyses the effect of job quality on pathways to productive activities of older workers in Europe. Using comparative panel data from SHARE, we analyse the medium term effects of working conditions of workers aged 50-64 on three participation outcomes (staying in employment, participating in social activities and providing informal care) with a trivariate probit model. Several aspects of job quality appear to play a role for participation in society as a whole, including participation in social activities. Care-giving on the other hand appears independent from the considered job quality indicators, but very gender specific. However, trade-offs between full time work and care activities appear in some cases. Therefore, better working conditions and the opportunity for work time arrangements should be developed if one aims to foster participation of older workers in the society.
    Keywords: Job quality, ageing, early retirement, social participation, informal care.
    JEL: J22 J14 C35
    Date: 2011–10
  7. By: Blake, David; Wright, Douglas; Zhang, Yumeng
    Abstract: A defined contribution pension plan allows consumption to be redistributed from the plan member’s working life to retirement in a manner that is consistent with the member’s personal preferences. The plan’s optimal funding and investment strategies therefore depend on the desired profile of consumption over the lifetime of the member. We investigate these strategies under the assumption that the member is a rational life cycle financial planner and has an Epstein-Zin utility function, which allows a separation between risk aversion and the elasticity of intertemporal substitution. We also take into account the member’s human capital during the accumulation phase of the plan and we allow the annuitisation decision to be endogenously determined during the decumulation phase. We show that the optimal funding strategy involves a contribution rate that is not constant over the life of the plan but is age-dependent and reflects the trade-off between the desire for current versus future consumption, the desire for stable consumption over time, the member’s attitude to risk, and changes in the level of human capital over the life cycle. We also show that the optimal investment strategy during the accumulation phase of the plan is ‘stochastic lifestyling’, with an initial high weight in equity-type investments and a gradual switch into bond-type investments as the retirement date approaches in a way that depends on the realised outcomes for the stochastic processes driving the state variables. The optimal investment strategy during the decumulation phase of the plan is to exchange the bonds held at retirement for life annuities and then to gradually sell the remaining equities and buy more annuities, i.e., a strategy known as ‘phased annuitisation’.
    Keywords: Defined Contribution Pension Plan; Funding Strategy; Investment Strategy; Epstein-Zin Utility; Stochastic Lifestyling; Phased Annuitisation; Dynamic Programming
    JEL: G11 G23
    Date: 2011–09
  8. By: Roberto Leombruni; Michele Mosca
    Abstract: In Italy large work career gender gaps currently exists, particularly regarding wages and activity rates. The paper investigates the issue looking at lifetime incomes, where from the one side all the career gaps tend to accumulate, from the other the redistribution acted by the pension system may mitigate the differences. Exploiting an original database on the entire work careers, we document how the pay gap constantly opens with age and how women tend to cumulate lower seniority. Both gaps have an impact in the pension calculation, so that the day after retirement gender differences are even higher. By means of a microsimulation model we show that the pension system partially countervails labour market outcomes, implying lower differences in lifetime incomes. However, due to the current transition to an actuarially neutral system, the effect is going to vanish in following decades, posing some concerns about future prospects of gender income inequality.
    Date: 2011
  9. By: Hannu Tervo; Hannu Niittykangas
    Abstract: Workforce is aging in most developed countries, but still needed in productive work. Entrepreneurship at older ages is an option for many aging individuals. As existing and future generations are healthier and more able to work than previous generations, working careers can, and also have been extended. Various reasons such as age, health, gender and education, family status, accumulated savings and organizational factors can affect the choice between full-time work, bridge employment and retirement. But bridge employment as well as career choices may also be affected by many environmental factors. Regions with strong traditions of entrepreneurship may be more favourable to bridge employment in the form of self-employment than other regions. On the other hand, demand conditions may also account for possibilities to bridge employment. Regions with a low level of demand may not be favourable to self-employment at older ages. While some studies have focused on transitions into self-employment among older workers, the question of the motives and background still need clarification. This paper analyzes those who start a business at older ages in different regions in Finland. Who are they, and what is their background? What is the effect of human and financial capital on self-employment decisions? What is the role of previous experience in entrepreneurship - are those without experience from entrepreneurship different from those who have it? Is self-employment at older ages a real alternative only for serial and habitual entrepreneurs? In the analysis, we utilize a large longitudinal micro data to examine transfers of workers and those out of employment aged 55-74 into self-employment in Finland in 1998-2004. The data set represents a 7 percent sample of all Finns in 2001 of whom we have a lot of register-based and other data even from the year 1970 onward. Note: An alternative choice was : theme N: enterpreuneurship, networks and innovation
    Date: 2011–09
  10. By: Federica Teppa (De Nederlandsche Bank (DNB) and Netspar)
    Abstract: This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2005. Contrary to the majority of papers in the annuitization puzzle literature, this study allows to control explicitly for the subjective survival probability (SSP), a key driver of the decision about whether to annuitize or not as a perceived measure of longevity risk. We find that people expecting to live longer do claim to prefer the annuity. This finding is very robust to controlling for bequest motives. The relevance of this paper is twofold. First, it delivers an important empirical result on the role of the SSP that is still not directly tested in the literature. Second and more important, combined with the empirical evidence that on average individuals tend to systematically underestimate their life expectancy, the findings have strong policy implications. The annuitization puzzle may be alleviated by helping individuals in better assessng their longevity risk, rather than forcing their actions.
    Keywords: Longevity Risk; Annuitization Puzzle; Survey Data; Hypothetical Choices
    JEL: C5 C8 D12 G11
    Date: 2011
  11. By: Giulia Bizzotto; Claudia Villosio
    Abstract: This report is one of the outputs resulting from Workpackage 5, "Stakeholder policies and problem assessment" of the WALQING project, SSH-CT-2009-244597 (
    Keywords: home elderly care
    Date: 2011

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