nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒08‒02
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Retirement, Early Retirement and Disability: Explaining Labor Force Participation after 55 in France. By L. Behaghel; D. Blanchet; M. Roger
  2. Evaluating the possible impact of pension reforms on elderly poverty in Europe By Grech, Aaron George
  3. The automatic adjustment of pension expenditures in Spain:an evaluation of the 2013 pension reform By Alfonso R. Sánchez
  4. From bismarck to beveridge: the other pension reform in Spain By J. Ignacio Conde-Ruiz; Clara I. González
  5. Mobility, Housing Decisions and Economic Status of the Elderly in Taiwan By Chen, Shu-Mei; Yang, I-Chuan
  6. The potential of home equity conversion in financing the costs of ageing societies By Schilder, Frans; Conijn, Johan; Kramer, Bert; Rouwendal, Jan
  7. Toward a Liability Driven Investment Paradigm for DC Pensions: Implication for Real Estate Allocations By Ametefe, Frank; Stevenson, Simon; Devaney, Steven
  8. The Effect of Further Liberalisation in the Healthcare Industry on the (Healthcare) Real Estate in the Netherlands: A Comparison to Germany By Lim, Ivonne
  9. Residential Housing in the Spatial-Social Context of Home-Based Nursing and Care in Austria By Trofer, Birgit; Seeberger, Bernd
  10. Elderly and Housing Costs: Constraints in Mobility on the Housing Market By Leussink, Marieke; Smeets, Jos J.A.M.
  11. The Cost of Pollution on Longevity, Welfare and Economic Stability By Natacha Raffin; Thomas Seegmuller
  12. The effects of fertility rates and dependency rates on housing prices By Peng, Chien-Wen

  1. By: L. Behaghel; D. Blanchet; M. Roger
    Abstract: We analyze the influence of health and financial incentives on the retirement behavior of older workers in France, building upon Stock and Wise (1990) option value approach. The model accounts for three main retirement routes: the normal retirement, disability insurance (DI) and unemployment/preretirement pathways, and is estimated with a combination of microeconomic datasets that include the French data of the European SHARE survey. The estimates confirm that a decrease in the generosity of the pension and DI schemes induces people to stay longer in the labor market, and that people with better health tend to retire later. We present extreme situations simulating what individual's retirement behavior would have been if only one retirement route had existed and in the absence of constraints on work capabilities. We show that average years of work between 55 and 64 are nearly 14% greater when regular retirement incentives are applied to the whole population than when it is DI rules that are systematically applied.
    Keywords: Pensions, Social Security, Disability, Labor force participation, Senior.
    JEL: H55 J14 J26
    Date: 2014
  2. By: Grech, Aaron George
    Abstract: Since the 1990s reforms have changed substantially both the nature of state pension provision and the level of generosity. This article tries to assess the impact of these changes using estimates of pension wealth for a number of hypothetical cases. By focusing on all prospective pension transfers rather than just those at the point of retirement, this approach can provide additional insights, especially on the impact of changes in benefit indexation. These estimates corroborate existing evidence that reforms have decreased generosity significantly. Moves to link benefits to contributions have made systems less progressive, raising adequacy concerns for certain groups. The reforms have, in particular, strengthened the need of ensuring better access to labour markets, of having in place adequate crediting arrangements and minimum pensions.
    Keywords: Social Security; Public Pensions; Retirement; Poverty; Retirement Policies.
    JEL: H55 I38 J26
    Date: 2014–07
  3. By: Alfonso R. Sánchez (Universidad Pablo de Olavide de Sevilla)
    Abstract: This paper simulates the future performance of the Spanish pension system using a large OLG model. We compare the system in place after the 2011 pension reform to that emerging after the latest (2013) institutional changes. In particular, we explore the workings of the new indexing mechanism, linking pension payments to life expectancy and to the system’s aggregate flows of income and expenditure. We consider several alternative eco-demographic environments in our analysis and assess the welfare consequences for the different cohorts affected. Overall, the new automatic adjusting mechanism is broadly successful in its goal of stabilising the financial condition of the system. But the welfare costs imposed on some cohorts (e g. young workers at the beginning of the reform) is very heavy.
    Keywords: pension reform, automatic adjustment mechanism, population aging, Spain
    JEL: D58 H55 J11
    Date: 2014–07
  4. By: J. Ignacio Conde-Ruiz (Universidad Complutense de madrid and FEDEA); Clara I. González (Banco de España and FEDEA)
    Abstract: Aging is an unstoppable process and it remains a major challenge for the sustainability of the PAYG pension system in most developed countries, including in Spain. Many countries need to introduce reforms of their pension systems in order to control their expenditure, and in some cases this has already begun. However, there are other sorts of changes to certain parameters that are perceived as secondary, e.g. the different path of minimum and maximum pensions, and the upper and lower caps on contributions. This has significant implications for the distributive structure of the social security system that cannot be readily perceived by the population. That is why some economists in Spain refer to it as the “Silent Reform”. The aim of this paper is to analyse the consequences this type of reform would have in Spain; indeed, it is the first paper to actually quantify and evaluate the potential impact it would have on the country. We have used an accounting model with heterogeneous agents and overlapping generations in order to project pension expenditures up until 2070. The results show that this kind of reform could potentially contain future expenditure and could also change the nature of the pension system from a contributory or Bismarckian-type system into an assistential or Beveridgean-type one. This change could have significant consequences as both systems have different objectives. The paper also shows that the institutional characteristics that make this kind of reform in Spain feasible are also present in most developed countries with Bismarckian pension systems. Therefore, we believe that the lessons learned in this paper on this kind of reform could well prove useful to other countries.
    Keywords: aging population, pension reform, Beveridgean type, Bismarckian type, accounting projection model, overlapping generations
    JEL: H55 J11 J26
    Date: 2014–07
  5. By: Chen, Shu-Mei; Yang, I-Chuan
    Abstract: The elderly suffered the uncertainty of health, losing spouse or wealth accumulation as they aged. In aging and low fertility society, how to increase elderly financial resources and satisfy their needs for everyday lives so that they can age with dignity is a very important issue. The homeownership rate is almost 85% or more in Taiwan. Some elderly households are housing rich but cash poor, the housing wealth could be converted to the living expense if they want. This study would like to explore the relationships between the housing tenure decisions after moving and economic status for the elderly. Both the economic financial needs and bequest behavior would have impacts on the housing decisions for the elderly. This study employs the multinomial choice models and the Survey of Health and Living Status of the Middle Aged and Elderly in Taiwan.
    Date: 2013
  6. By: Schilder, Frans; Conijn, Johan; Kramer, Bert; Rouwendal, Jan
    Abstract: PurposeThere is increasing debate about how to finance the increasing costs of our ageing societies. Much attention in Europe has recently focussed on the extent to which households would be willing to use home equity conversion products. The question to which extent home equity can contribute in financing the needs of elderly has been left unanswered. This study quantifies to what extent future income of elderly can be increased through home equity conversion for the case of The Netherlands.DesignFor a large sample of households that are either now or in the medium long run eligible for home equity conversion we estimate the amount of home equity that can be converted. We use a stochastic model to annuitize home owners’ potential income from home equity.FindingsThere are some groups of households that may substantially increase income at old age through home equity conversion. In general, however, the additional income generated from conversion is limited. This is the result of a significant asymmetry between real estate and financial markets. In the near future additional income from home equity conversion is further decreased as a result of a cohort effect: the future elderly are more highly leveraged than the current elderly. The outcomes are robust for different model assumptions.Social implicationsThe relatively little additional income to be generated from home equity conversion puts debate about financing welfare state arrangements into new perspective. The current popular idea in The Netherlands that welfare arrangements can be partially paid for by the elderly home owners themselves is proven to be false.
    Date: 2014
  7. By: Ametefe, Frank; Stevenson, Simon; Devaney, Steven
    Abstract: In this paper, we propose and implement the concept of Liability Driven Investment within the context of defined contribution pension funds, which do not have implicit liabilities. We adopt a transitional approach, by moving from a one period mean variance analysis through to a dynamic optimisation approach. This approach would enable us to see how different approaches could result in significant allocations to the various asset classes. We begin by constructing one period mean variance portfolios for different points on the risk aversion spectrum. We make use of the risk aversion figures provided in Hanna et al (2001). Here, we observe how the allocation to real estate is influenced by different risk tolerance levels. In general, it is believed that as people get closer to retirement, their risk aversion increases. Thus, results from this section would provide a guideline for the proportion of the various assets would have to be included at different points in time. Next, we run an Asset Liability Management (ALM) using a model similar to that used by Booth (2002). We construct the liability driven portfolios using the following liability benchmarks: (i) Long term government bonds (ii) Index-linked bonds (iii) Age profile of the UK. Further, we analyse the role that real estate plays in these portfolios by imposing regulatory constraints which directly impact the allocation to real estate. We obtain these regulations from the OECD (2013) Annual Survey of Investment Regulation of Pension funds. Our analysis is done from the perspective of a a UK defined contribution pension fund, although we use global indices to diversify globally. Also, in applying the rules, we simply apply the various rules currently in place (as at 2013) in all the countries even though these rules might not be in existence in the UK. We aim to determine, in general, what different regulations with respect to real estate would ultimately impact on pension fund outcomes. Also, further analyse role that real estate assets play in the resulting portfolios, we make use of a disaggregated IPD index instead of overall returns used in other studies. We include all the the various sectors that make up the IPD index and treat them as independent asset classes. Finally, following Dempster et al (2002), we use a dynamic ALM model which is a variant of the Computer-Aided Asset Liability Management (CALM) Model of Dempster (1993). This approach has also been used by Consigli and Dempster (1998
    Date: 2014
  8. By: Lim, Ivonne
    Abstract: Up until recently, there have been two kinds of elderly living in the Netherlands: ‘care complex’ (light care) and nursing complex (intensive care), mostly located outside the city. Elderly could have been living there and receiving care from a care institution (almost) for free, if being referred by a special indication centre for healthcare. The care institution has been financed by a special public funding (for healthcare including living) that comes from the working citizens.At this moment, due to the shortage of the budget, the living subsidy for the light care patients is being stopped. (Elderly) care patients have to pay the rent for the living themselves. As a result, elderly are free to decide where and how they want to live. The contemporary care complexes are out and various new living shapes have come to existence like patio, domotica and senior living. But there is also a ‘lifetime proof apartments complex’, a trendy new shape of living, where younger and elder citizens can live for a lifetime. These new complexes are mostly located inside the city, near by healthcare, shopping and culture facilities. This (on-going) research analyses the impact to nursing complexes, when the living subsidy of the intensive care patients are also being revoked. Will nursing complexes also disappear and be replaced by many shapes of living like care complexes? Which shape of living will make the biggest chance in the future market of (care) real estate? Interviews have been held with economists, real estate investors, healthcare experts and retirement experts to find out what their long term visions are. Also a survey has been conducted to find out how and where the potential care consumers want to live.Many kinds of living will come into existence, but the lifetime proof apartment complexes will have the biggest chance to grow in the new market of (care) real estate.
    Date: 2013
  9. By: Trofer, Birgit; Seeberger, Bernd
    Abstract: Purpose - Given age-related dwindling of competencies and eventual necessity of home-based nursing care in the home of elderly people, this study shows the spatial and social implications with reference to the person-environment fit. Design/methodology/approach - A qualitative approach has been chosen in order to conduct a penetrative single case analysis whose multiplicity permits a socially realistic description of the specific research context. Eleven members of staff from six different care organisations based in Austria were asked about these circumstances within the framework of expert interviews, supported by interview guidelines and recorded with an electronic device. The transcribed interviews were analysed using Qualitative Content Analysis according to Mayring (2008).Findings - The results emphasise the special significance of the person-environment fit for the context of home-based nursing care for the elderly and the particular demands made on their homes. Facing decreased personal competencies, especially missing barrier-free elements in the dwelling have been criticised. The recommendation of home adaption measures, improvisation and the refusal of the assignment of home-based care belong to the strategies the research group undergoes. Furthermore, the results show an enhancement of the person-environment fit. Besides proving room for living, the dwelling has to fulfil further functions because it is now the epicentre for the provision of home-based care. The results illustrate that attention should be directed on the private and individual context of the person.Originality/value - The study at hand, building on existing research results, adds the perspective of health care workers with regard to home-based care of the elderly.
    Date: 2013
  10. By: Leussink, Marieke; Smeets, Jos J.A.M.
    Abstract: The Dutch government stimulates elderly people to live independently as long as possible. For that purpose Dutch housing associations are charged with the duty to accommodate elderly people suitable. They are not only delivering services to their own tenants at higher age, but also trying to attract elderly people with a higher income from the owner occupied sector. However, it turns out not to be easy to tempt elderly home owners to move to the rental sector. One of the reasons is the difference in housing costs.The housing costs of households are not only set by the price of rent or mortgage but also by dwelling-related costs like energy and water. The accumulation of housing costs and costs of energy, the total housing cost, differ not only between the owner occupied sector and the rental sector but they also vary according to the stage of the life cycle of these households.Especially the housing costs of elderly residents are rather divergent. Are the housing costs of elderly tenants often comparable with other households in the rental sector, the cost of elderly home owners are significant lower. Lower than the costs of other households in the owner occupied sector as well as lower than the total housing costs of elderly tenants.The paper is based on an extensive survey on housing costs among elderly households in the region of Eindhoven. It explores the housing costs of two types of elderly households in both sectors: the 'young elderly households' (55-74 years) and 'elderly households' (>75 years) and tries to explain the difference.It also discusses the consequences of the difference in housing costs between these two forms of tenure for the possible shift from the owner occupied sector to the social rental sector.
    Date: 2013
  11. By: Natacha Raffin (Université Paris Ouest Nanterre la Défense EconomiX); Thomas Seegmuller (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS)
    Abstract: This paper presents an overlapping generations model where pollution, private and public healths are all determinants of longevity. Public expenditure, financed through labour taxation, provide both public health and abatement. We study the complementarity between the three components of longevity on welfare and economic stability. At the steady state, we show that an appropriate fiscal policy may enhance welfare. However, when pollution is heavily harmful for longevity, the economy might experience aggregate instability or endogenous cycles. Nonetheless, a fiscal policy, which raises the share of public spending devoted to health, may display stabilizing virtues and rule out cycles. This allows us to recommend the design of the public policy that may comply with the dynamic and welfare objectives.
    Keywords: longevity, Pollution, welfare, complex dynamics
    JEL: J10 O40 Q56 C62
    Date: 2014–07–16
  12. By: Peng, Chien-Wen
    Abstract: Dependency rate is an indicator of demographic structure which usually be used to measure the pressure on productive population. A high dependency ratio can cause serious problems for a country if a large proportion of a government's expenditure is on health, social security and education, which are most used by the youngest and the oldest in a population. Many previous studies found that dependency rate was the main determinant of household saving or wealth accumulation. This study tries further to clarify whether demographic changes, especially dependency rate, affecting housing prices. The empirical results reveal that house price is cointegrated with fertility rate and old dependency rate, respectively. In the long run, an increase of fertility rate increases house price. However, an increase of old dependency rate reduces house price. The expected demographic change in 2015 would be an important signal of housing price change.
    Date: 2014

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