nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒05‒22
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Características demográficas y socioeconómicas de los adultos mayores en la Argentina: elaboración de un índice de bienestar By Calabria, Alejandro A.; Rottenschweiler, Sergio
  2. Retirement: Does Individual Unemployment Matter? Evidence from Danish Panel Data 1980–2009 By Filges, Trine; Larsen, Mona; Pedersen, Peder J.
  3. An extensive look at taxes: how does endogenous retirement affect optimal taxation? By William B. Peterman
  4. Paid Work after Retirement: Recent Trends in Denmark By Larsen, Mona; Pedersen, Peder J.
  5. The impact of changes in second pension pillars on public finances in Central and Eastern Europe By Balázs Égert
  6. A different perspective on retirement income sustainability: the blueprint for a ruin contingent life annuity (RCLA) By Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
  7. Does Coresidence Improve an Elderly Parent’s Health? By Meliyanni Johar; Shiko Maruyama
  8. Lifetime Labor Supply and Human Capital Investments By Rodolfo Manuelli; Ananth Seshadri; Yongseok Shin
  9. Female Labor Force Participation and Informal Care of Adults: Evidence for a middle-income country By David Bravo; Esteban Puentes
  10. Social security family finance and demography By Jellal, Mohamed; Bouzahzah, Mohamed
  11. The Funding of State and Local Pensions: 2011 - 2015 By Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz; Madeline Medenica; Laura Quinby
  12. Lessons from National Pensions Communication Campaigns By Adele Atkinson; Debbie Harrison; Flore-Anne Messy; Juan Yermo
  13. Optimal retirement consumption with a stochastic force of mortality By Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
  14. Valuation and hedging of the ruin-contingent life annuity (RCLA) By Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
  15. Review of the Swedish National Pension Funds By Clara Severinson; Fiona Stewart
  16. Everything under Control? The Effects of Age, Gender, and Education on Trajectories of Perceived Control in a Nationally Representative German Sample By Jule Specht; Boris Egloff; Stefan C. Schmukle

  1. By: Calabria, Alejandro A.; Rottenschweiler, Sergio
    Abstract: Since 2003, it has been observed in Argentina a paradigm shift with regard to social security, in general, and pension system, in particular, based mainly on the inclusion and solidarity. The implementation of the Pension Inclusion Plan, more than ten increases in pension benefits before the Mobility Act´s implementation, the creation of the Sustainability Guarantee Fund (FGS) and the Argentinean Integrated Retirement System (SIPA) have undeniably impacted on the economic situation of older adults through improvements in pension benefits and the highest rate of coverage. In this paper, through the estimation of a Welfare Index for the Elderly (IBPM), we conclude that the effects of these measures were not limited to mere monetary issues but hauled as a result, significant improvements in quality of life, education, health and longevity, among others, for a vulnerable age group as that of older adults.
    Keywords: adultos mayores; índice de bienestar; cobertura previsional; sistema previsional argentino
    JEL: H55 I31 I38
    Date: 2011–12–01
  2. By: Filges, Trine (SFI - Danish National Centre for Social Research); Larsen, Mona (SFI - Danish National Centre for Social Research); Pedersen, Peder J. (University of Aarhus)
    Abstract: The paper studies the impact from variations in unemployment on retirement among older workers. We integrate unemployment variations with early retirement programs and other pathways out of the labor force. The paper describes retirement programs, policy changes, labor force participation among older workers and presents a new estimate of the trend in the average age of retirement. Individual panel data for the last 25 years are used in estimations of the impact from individual unemployment on the retirement decision. Unemployment is found highly significant and quantitatively important for the retirement decision. We conclude that there is a clear risk of a cyclical downturn resulting in a more long run reduction in productive capacity with negative consequences for the budget of the public sector.
    Keywords: unemployment, labor force participation, retirement
    JEL: E32 J21 J26 J64
    Date: 2012–05
  3. By: William B. Peterman
    Abstract: This paper considers the impact on optimal tax policy of including endogenously determined retirement in a life cycle model. Allowing individuals to determine when they retire causes the optimal tax on capital to increase by 75% because of two implicit changes in the aggregate labor supply elasticity. First, including endogenous retirement causes an increase in the overall aggregate labor supply elasticity since agents can change their labor supply on both the intensive and extensive margins. In response, the government limits the distortions from the tax policy by lowering the tax on labor and increases the tax on capital. Second, given that the choice to retire is more relevant for older individuals, endogenous retirement disproportionately increases older agent's elasticity compared to younger individuals. Ideally, the government would decrease the relative labor income tax on individuals when they are older and supply labor more elastically. However, in the absence of age-dependent taxes, the government mimics such a tax policy by further increasing the tax on capital. I find that the welfare lost from not accounting for endogenous retirement when solving for the optimal tax policy is equivalent to approximately one percent of lifetime consumption.
    Date: 2012
  4. By: Larsen, Mona (SFI - Danish National Centre for Social Research); Pedersen, Peder J. (University of Aarhus)
    Abstract: The labor market in Denmark seems to follow the trend in a number of other countries of increasing labor force participation in the 60+ group. We analyze trends for the early retirement age interval 60-64 and for the age group 65-74 where people are eligible to a national social security program from age 65. Until now, the increase in labor force participation has been most pronounced among 60-64-year-olds and among women. We find significant impact on work after retirement from education, gender, home ownership, aggregate unemployment at the time of retirement, age and education. Being married has a positive impact for men and a negative impact for women. We relate labor force participation after retirement to the cyclical situation and to the several policy reforms introduced since 1980.
    Keywords: labor force participation, retirement
    JEL: H55 J14 J26
    Date: 2012–05
  5. By: Balázs Égert
    Abstract: This paper studies the impact of recent changes in second pension pillars of three Central and Eastern European Countries on the deficit and implicit debt of their full pension systems. The paper seeks to answer the following questions: i) what is the impact on the sustainability of Poland’s pension system of the decrease in the pension contribution going to the second pension pillar from 7.3% to 2.3% in 2011; ii) what are the implications of the recent changes on gross replacement rates; iii) does the weakening of the Polish second pension system have a different impact on pension system sustainability than a similar move in a Hungarian-style pension system with a defined-benefit first pillar and iv) how does Estonia’s temporary decrease in pension contributions compensated by temporarily higher future rates affect pension sustainability in that country. The simulation results show that in our baseline scenario the Polish move would permanently lower future pension-system debt, chiefly as a result of a cut in replacement rates. But using a combination of pessimistic assumptions including strong population ageing, low real wage growth and a high indexation of existing pension benefits, coupled with bringing in tax expenditures related to the third voluntary pension pillar and an increase in the share of minimum pensions leads to higher pension system deficits and eventually more public debt at a very long horizon. The simulations also suggest that the Hungarian pension reversal reduces deficit and debt only temporarily, mainly because of Hungary’s costly defined-benefit first pension pillar: the weakening of the second pillar is tantamount to swapping low current replacement rates (in the defined-contribution second pillar) against high future replacement rates in the defined-benefit first pension pillar. Finally, results show that the Estonian move will increase public debt only very moderately in the long run, even though this result is sensitive to the effective interest rate on public debt.
    Keywords: pension system; pension reversal; defined benefit; defined contribution; public finances; Central and Eastern Europe
    JEL: H55 J32
    Date: 2012
  6. By: Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: The purpose of this article is twofold. First, we motivate the need for a new type of stand-alone retirement income insurance product that would help individuals protect against personal longevity risk and possible "retirement ruin" in an economically efficient manner. We label this product a ruin-contingent life annuity (RCLA), which we elaborate-on and explain with various numerical examples and a basic pricing model. Second, we argue that with the proper perspective a similar product actually exists, albeit not available on a stand-alone basis. Namely, they are fused and embedded within modern variable annuity (VA) policies with guaranteed living income benefit (GLiB) riders. Indeed, the popularity of GLiB riders on VA policies point towards the potential commercial success of such a stand-alone vehicle.
    Date: 2012–05
  7. By: Meliyanni Johar (University of Technology, Sydney (UTS)); Shiko Maruyama (School of Economics, The University of New South Wales)
    Abstract: It is generally believed that intergenerational coresidence by elderly parents and adult children provides security for parents in their old age. In many countries, such intergenerational coresidence is the most common living arrangement. Using a nationally-representative dataset and a program evaluation technique that accounts for endogenous and heterogeneous treatment effects, we find robust evidence of a negative coresidence effect, contrary to the popular belief. The unintended adverse effect on parental health has significant implications for future informal care policies, given that coresidence is expected to remain the primary form of old age security in the foreseeable future.
    Keywords: intergenerational coresidence; elderly; heath; treatment effects
    JEL: I12 J1 C31
    Date: 2011–05
  8. By: Rodolfo Manuelli (Washington University in St. Louis and Federal Reserve Bank of St. Louis); Ananth Seshadri (University of Wisconsin--Madison); Yongseok Shin (Washington University in St. Louis and Federal Reserve Bank of St. Louis)
    Abstract: We develop a model of retirement and human capital investment to study the effects of tax and retirement policies. Workers choose the supply of raw labor (career length) and also the human capital embodied in their labor. Our model explains a significant fraction of the US-Europe difference in schooling and retirement. The model predicts that reforms of the European retirement policies modeled after the US can deliver 15-35 percent gains in per-worker output in the long run. Increased human capital investment in and out of school accounts for most of the gains, with relatively small changes in career length. JEL classification: E24; J24
    Keywords: Lifetime labor supply human capital
    JEL: E24 J24
  9. By: David Bravo; Esteban Puentes
    Abstract: The provision of elderly care is an issue of increasing importance in Latin American countries because of a aging population, decrease in household size, and increased complexity of care. Thus, it is important to analyze how the provision of informal care of other adults affects the welfare of women since they are usually responsible for this type of care. We analyze in this paper the relationship between providing informal care to adults and labor outcomes for a middle-income country with a rapidly aging population. This is one of the first studies to focus on middle-income countries and in Latin America. The results of this research show the importance of considering the endogeneity that exists between informal care and female labor participation. A partial correlation analysis shows a strong negative relationship between providing care and labor participation, however, when we use methods for endogeneity correction, the correlation does not hold. Additionally, we found that poor households are more likely to be involved in care giving activities, and that the presence of a spouse reduces the likelihood of provision of care.
    Date: 2012–04
  10. By: Jellal, Mohamed; Bouzahzah, Mohamed
    Abstract: In this paper we analyzed a model of endogenous fertility in presence of financial market assets and social security pensions. Given the children externality and in the absence of corrective policy, the fertility rate chosen in market economy is too low. Indeed, in his optimal choice of family size, the representative household does not take into account of this children externality which leads to a sub optimal demography. We have shown that an optimal demographic allocation exists and can be implemented through a subvention taxation policy if it is available
    Keywords: Fertility; social security; financial maket; old age security
    JEL: J13 H55 E2 J1 D1
    Date: 2012
  11. By: Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz; Madeline Medenica; Laura Quinby
    Abstract: The stock market hovers around pre-crisis peaks, tax revenues have rebounded, and plan sponsors have raised employee contributions for all workers and/ or reduced benefits for new workers, yet the funded status of state and local pension plans have once again slipped. This result reflects slow growth in the value of actuarial assets as actuaries in the public sector tend to smooth gains and losses over several years, which was only partly mitigated by an unexpected reduction in liability growth.
  12. By: Adele Atkinson; Debbie Harrison; Flore-Anne Messy; Juan Yermo
    Abstract: The present report focuses on the pre-campaign planning, the design, the delivery, and the monitoring and evaluation of National Pension Communication Campaigns in a range of OECD and non-OECD countries. The research identifies barriers to effective communications and highlights models of good practice in order to help organisers design campaigns that are more effective in terms of impact and more efficient in the way they use resources. In particular, the report argues that the success of campaign organisers will depend on their ability to set realistic and measurable goals that can be delivered in a timely, cost-effective and innovative manner to achieve maximum impact. The report also calls for better evaluation of campaigns and more targeted communication that delivers clearer messages.<P>Les enseignements tirés des campagnes d'information nationales sur l'épargne-retraite<BR>Ce rapport examine les travaux préparatoires, la conception, le déroulement, le suivi et l’évaluation des campagnes nationales d.information sur l’épargne-retraite dans différents pays, membres ou non de l’OCDE. L’étude recense les obstacles à une communication pertinente et met en évidence les modèles de bonnes pratiques pour concevoir des campagnes plus efficaces en termes d’impact et plus efficientes en termes d’utilisation des ressources. Le rapport montre notamment que la réussite d’une campagne dépend de la capacité des prestataires à fixer des objectifs réalistes et mesurables, susceptibles d’être atteints dans les délais, de facon rentable et innovante, pour garantir un impact maximal. Le rapport prône également une meilleure évaluation des campagnes d’information, une communication plus ciblée, portant des messages plus clairs.
    Keywords: pension reform, pension fund, defined contribution, financial education, financial literacy, communication campaigns, fonds de pension, plans de retraite à cotisations définies, éducation financière, réforme des retraites, campagnes d'information, culture financière
    JEL: D14 D18 G23 G28 I28 J26 O16 O19
    Date: 2012–05–14
  13. By: Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: We extend the lifecycle model (LCM) of consumption over a random horizon (a.k.a. the Yaari model) to a world in which (i.) the force of mortality obeys a diffusion process as opposed to being deterministic, and (ii.) a consumer can adapt their consumption strategy to new information about their mortality rate (a.k.a. health status) as it becomes available. In particular, we derive the optimal consumption rate and focus on the impact of mortality rate uncertainty vs. simple lifetime uncertainty -- assuming the actuarial survival curves are initially identical -- in the retirement phase where this risk plays a greater role. In addition to deriving and numerically solving the PDE for the optimal consumption rate, our main general result is that when utility preferences are logarithmic the initial consumption rates are identical. But, in a CRRA framework in which the coefficient of relative risk aversion is greater (smaller) than one, the consumption rate is higher (lower) and a stochastic force of mortality does make a difference. That said, numerical experiments indicate that even for non-logarithmic preferences, the stochastic mortality effect is relatively minor from the individual's perspective. Our results should be relevant to researchers interested in calibrating the lifecycle model as well as those who provide normative guidance (a.k.a. financial advice) to retirees.
    Date: 2012–05
  14. By: Huaxiong Huang; Moshe A. Milevsky; Thomas S. Salisbury
    Abstract: This paper analyzes a novel type of mortality contingent-claim called a ruin-contingent life annuity (RCLA). This product fuses together a path-dependent equity put option with a "personal longevity" call option. The annuitant's (i.e. long position) payoff from a generic RCLA is \$1 of income per year for life, akin to a defined benefit pension, but deferred until a pre-specified financial diffusion process hits zero. We derive the PDE and relevant boundary conditions satisfied by the RCLA value (i.e. the hedging cost) assuming a complete market where No Arbitrage is possible. We then describe some efficient numerical techniques and provide estimates of a typical RCLA under a variety of realistic parameters. The motivation for studying the RCLA on a stand-alone basis is two-fold. First, it is implicitly embedded in approximately \$1 trillion worth of U.S. variable annuity (VA) policies; which have recently attracted scrutiny from financial analysts and regulators. Second, the U.S. administration - both Treasury and Department of Labor - have been encouraging Defined Contribution (401k) plans to offer stand-alone longevity insurance to participants, and we believe the RCLA would be an ideal and cost effective candidate for that job.
    Date: 2012–05
  15. By: Clara Severinson; Fiona Stewart
    Abstract: This paper provides a review of the Swedish National Pension Funds based on international good practice and OECD guidelines. The paper focuses mainly on the general size and structure of the funds, the investment framework and the governance of the funds. The internal management of the funds appears to be strong, with governance and risk management structures in place that appear to broadly follow OECD guidelines. The report concludes that the AP funds could benefit from having one clear and specific long-term investment objective, set by an independent committee answerable to Parliament, for all the AP funds against which their long-term performance can objectively be measured. The mandate and role of the AP6 fund could also be clarified. The report recommends the implementation of the prudent person rule as restrictive investment regulations are leaving the AP funds with less room to adopt varying investment strategies, and thus takes away some of the potential benefits of competition and diversification from having four different funds. Finally the selection process for the Governing Boards of the funds could be made more transparent and rigorous.<P>Examen des fonds nationaux de pension en Suède<BR>On trouvera dans cette note un examen des fonds nationaux de pension en Suede fonde sur les bonnes pratiques menees dans les differents pays et les Lignes directrices de l.OCDE. La note met principalement l.accent sur le montant observe en general et sur la structure des fonds, le cadre des investissements et la gouvernance des fonds. La gestion interne des fonds apparait saine, et il semble que les structures de gouvernance et de gestion du risque qui sont applicables soient conformes dans l.ensemble aux Lignes directrices de l.OCDE. L.etude conclut que les fonds AP gagneraient a se fixer un objectif a long terme d.investissement clair et specifique, determine par une commission independante responsable devant le Parlement, pour tous les fonds AP par rapport auxquels leurs performances a long terme peut etre objectivement mesurees. Le mandat et le role du fonds AP6 pourraient egalement etre clarifies. Cette etude recommande l.application de la regle de prudence, dans la mesure ou des reglementations restrictives en matiere d.investissement laissent peu de marge de manoeuvre aux fonds AP pour faire varier leurs strategies d.investissement et les privent donc des avantages potentiels de la concurrence et de la diversification qui resultent de l.existence de quatre fonds differents. Enfin, le processus de selection des membres des comites directeurs des fonds pourrait etre rendu plus transparent et plus rigoureux.
    Keywords: governance, public pensions, pension fund, reserve funds, Swedish National Pension Funds, AP Funds, investment framework, fonds de pension, gouvernance, fonds AP, cadre d’investissement, pensions publiques, fonds de réserve, fonds nationaux de pension suédois
    JEL: G18 G23 G28
    Date: 2012–05–04
  16. By: Jule Specht; Boris Egloff; Stefan C. Schmukle
    Abstract: Perceived control is an important variable for various demands involved in successful aging. However, perceived control is not set in stone, but rather changes throughout the life course. The aim of this study was to identify cross-sectional age differences and longitudinal mean-level changes as well as rank-order changes in perceived control with respect to sex and education. Furthermore, changes in income and health were analyzed to explain trajectories of perceived control. In a large and representative sample of Germans across all of adulthood, 9,484 individuals gave information about their perceived control twice over a period of 6 years. Using LOESS curves and latent structural equation modeling, four main findings were revealed: (a) Perceived control increased until ages 30 to 40, then decreased until about age 60, and increased slightly afterwards; (b) The rank order of individuals in perceived control was relatively unstable, especially in young adulthood, and reached a plateau at about age 40; (c) Men perceived that they had more control than women did, but there were no sex differences in the development of perceived control; (d) Individuals with more education perceived that they had more control than those with less education, and there were slight differences in the development of perceived control dependent on education. Taken together, these findings offer important insights into the development of perceived control across the life span.
    Keywords: perceived control, personality development, longitudinal, representative sample
    Date: 2012

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