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on Economics of Ageing |
| By: | Laura D. Quinby; Geoffrey T. Sanzenbacher |
| Abstract: | A simple lifecycle model predicts that employees should react to variation in their expected pension income by adjusting their supplemental retirement saving. Whether this prediction is accurate may turn out to be very important for state and local workers. While a common narrative holds that state and local workers spend a full career in government and retire with substantial defined benefit pensions, in practice, their defined benefit wealth varies widely across jurisdictions, and a subset of plans are so poorly funded that they may not be able to pay full benefits. In addition, about 25 percent of state and local workers are not covered by Social Security in their current job. To see whether public workers are likely to augment their pensions with outside savings, this brief, based on a recent study, explores the relationship between participation in a supplemental defined contribution plan and three factors that could impact the need to save: low wealth accumulation in a defined benefit plan, low plan funded levels, and lack of Social Security coverage. The discussion proceeds as follows. The first section describes what we know about the interaction between saving in defined benefit pensions (employer plans and Social Security) and supplemental saving. The second section discusses the data used to examine how supplemental saving relates to public employer defined benefit plans. The third section describes the methodology that relates supplemental savings to an employeeÕs pension plan savings, the planÕs funded ratio, and Social Security coverage. The fourth section presents the results, which show that workers modestly increase their participation in a defined contribution plan in response to lower required contributions to their pension, but not to a low pension funded ratio or a lack of Social Security coverage. The final section concludes that if states and localities hope their workers will make up for reduced pension income through supplemental savings, that hope may be ill-founded. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:crr:slpbrf:slp76&r=all |
| By: | Francesca Carta; Francesco D'Amuri; Till M. von Wachter |
| Abstract: | This paper quantifies the effect of a policy-induced sharp increase in retirement ages on input mix and economic outcomes of firms using Italian matched worker-firm data. Data on lifetime pension contributions are used to calculate the expected additional number of older workers employed by each firm due to the reform. Resulting instrumental variable estimates show an increase in older workers leads to a precisely estimated rise in employment of younger workers, value added, and total labor costs at constant labor productivity and unit labor costs. The findings suggest rising institutional retirement ages can help firms to retain valuable older employees. |
| JEL: | H55 J23 J26 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28407&r=all |
| By: | Marta Cubas Pardo (UPV - Universitat Politecnica de Valencia) |
| Abstract: | Many countries are currently facing the problem of sustainability of public pension systems due to demographic developments and changes in the labor market. In this context, private pension plans are often presented as an alternative. This paper aims to describe the functioning of the current public pension system in Spain and the impact that abandoning the current public system and adopting a pension system based on private contributions would have on workers and pensioners. To this end, a hypothetical case study is presented, for an average worker, comparing the contributions made in each of the systems (public and private) as well as the benefits received after retirement. The results show the different nature of public pensions, which act as an insurance and have a strong redistributive component, as opposed to private pensions, which have an investment nature. For the average worker, the adoption of a private system would entail losses in the purchasing power during his working life and a very substantial reduction in the amounts received during retirement, along with greater economic instability. |
| Abstract: | Actualmente, numerosos países se enfrentan al problema de la sostenibilidad de los sistemas públicos de pensiones debido a la evolución demográfica y los cambios en el mercado de trabajo. En este contexto, se suelen presentar como alternativa los planes privados de pensiones. Este trabajo tiene por objeto describir el funcionamiento del sistema público de pensiones actual de España y el impacto que tendría para trabajadores y pensionistas el abandono del sistema público actual y la adopción de un sistema de pensiones basado en las aportaciones privadas. A tal fin se presenta un hipotético caso de estudio, para un trabajador medio, en el que se comparan las aportaciones realizadas en cada uno de los sistemas (público y privado) así como las prestaciones recibidas tras la jubilación. El resultado pone de manifiesto la diferente naturaleza de las pensiones públicas, que actúan como un seguro y tiene un fuerte componente redistributivo, frente a las pensiones privadas, que tienen un carácter de inversión. Para el trabajador medio, la adopción de un sistema privado comportaría pérdidas de poder adquisitivo durante su etapa laboral y una reducción muy sustancial de los importes recibidos durante su jubilación, junto con mayor inestabilidad económica. |
| Keywords: | Labour market,Spain,Pension plan,Retirement,Planes de pensiones,España,Mercado laboral,Jubilación |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03149326&r=all |
| By: | Read, Sanna; Erens, Bob; Wittenberg, Raphael; Wistow, Gerald; Dickinson, Francis; Knapp, Martin; Cyhlarova, Eva; Mays, Nicholas |
| Abstract: | There is ongoing debate about how the funding system for social care of older people in England should best be reformed. We investigated how public attitudes to individual and state responsibility for paying for social care in later life vary with demographic and socio-economic characteristics. Four vignettes of individuals in need of home care or residential care with varying levels of savings, income and housing wealth were presented to a sample of people aged 18–75 years (n = 3000) in December 2018. Respondents were asked if care costs should be paid by the user, the state or shared. They were also asked about the best way to pay for social care in old age. Latent class analysis was used to identify sub-groups with similar preferences for paying for care, and to explore their socio-demographic characteristics. We identified five classes. The majority (Class 1, 58%) preferred that the state and the user should share social care costs. Class 2 (18%) thought that the state should pay all costs regardless of users' savings, income or housing wealth. Class 3 (15%) preferred users to pay all costs at all levels of savings, income and housing wealth, with the exception of those unable to afford the costs. Classes 4 and 5 (5% each) were characterised by different patterns of ‘don't know’ answers. Socio-economic status was higher among those proposing higher user contributions (Class 3) and lower among those with several ‘don't’ know’ responses (Classes 4 and 5). Concerns about care costs in old age were high among those proposing that the state pays all costs (Class 2) and those preferring that users pay all costs (Class 3). This study shows that public views on social care funding vary with respondents' characteristics and that proposals to reform the system need to be carefully calibrated. |
| Keywords: | England; funding; latent class analysis; long-term care; paying for care; public attitudes; social care of older people; 102/0001 |
| JEL: | E6 |
| Date: | 2021–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:109013&r=all |
| By: | Niklas Gohl; Peter Haan; Elisabeth Kurz; Felix Weinhardt |
| Abstract: | This paper provides a novel test of a key prediction of human capital theory that educational investment decisions depend on the length of the pay-off period. We obtain causal estimates by leveraging a unique reform of the German public pension system that, across a sharp date-of-birth cutoff, increased the early retirement age by three years. Using RDD, DiD, and IV estimation strategies on census and household-panel data, we show that this reform causally increased educational investment in the form of on-the-job training. In contrast, non-job related training before retirement was not affected. We explore heterogeneity and additional outcomes. |
| Keywords: | human capital, retirement policies, RDD |
| JEL: | J24 J26 H21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1753&r=all |
| By: | Jason Scott; John B. Shoven; Sita Slavov; John G. Watson |
| Abstract: | We examine optimal retirement saving for young adults in a life cycle model. We find that for liquidity-constrained young adults who anticipate significant earnings growth, optimal retirement saving is zero. Specifically, we find that with a plausible wage profile for college-educated workers, retirement saving does not begin until the late 30s or early 40s, even with standard employer matching. In fact, inducing workers in their mid 20s to participate in a retirement plan requires employer match rates of more than 1000 percent. In contrast, workers facing a flat wage profile begin saving much earlier in life. We also find that participating may be optimal for younger workers facing steeper wage profiles if they anticipate switching jobs and cashing out after 1-2 years. Our results suggest that automatically enrolling workers, regardless of age or anticipated future earnings, in defined contribution plans is not consistent with optimizing behavior in a life cycle model. |
| JEL: | D14 D15 J26 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28396&r=all |
| By: | Guinnane, Timothy; Streb, Jochen |
| Abstract: | Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard models: if children are desirable in part because they provide security in case of disability or old age, then State programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the period 1881-1910. Bismarck's social-insurance scheme had three pillars: health insurance, workplace accident insurance, and an old age pension. Earlier studies typically focus on the pension alone; we consider all three pillars. We find that Bismarck's social insurance system affected fertility overall only via its effects on the incentive to marry. The old age insurance by itself tended to reduce marriages, but the health and accident-insurance components had the opposite effect. For people exposed to all three pillars of social insurance, the two effects cancelled each other and the aggregate effect on fertility was muted. |
| Keywords: | Social insurance,pensions,fertility transition,marriage,Bismarck,Prussia |
| JEL: | H55 I13 J11 N13 N33 N43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:901&r=all |
| By: | Agustin Redonda; Christopher Axelson |
| Abstract: | In 2016, the South African government introduced a comprehensive reform to simplify and harmonize the pension system in order to incentivize pension savings and increase the fairness of the retirement system. Using administrative tax micro-data, we assess the impact of the 2016 reform and find that it triggered a positive impact on the extensive margin (the number of people contributing to pension funds) and a less sharp yet positive effect on the intensive margin (the average value of contributions). |
| Keywords: | Pensions, Tax incentive, Inequality, Tax expenditures, retirement |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2021-54&r=all |
| By: | Fructuoso Borrallo (Banco de España); Susana Párraga-Rodríguez (Banco de España); Javier J. Pérez (Banco de España) |
| Abstract: | Using microdata from the European Union, the United States and Japan, we show that the elderly bear lower effective tax rates than the young. This difference is explained by the income gap and the different generational consumption baskets. However, tax reforms enacted in recent decades have led to an increase in the relative contribution of the elderly to public finances. |
| Keywords: | population ageing, tax collection, direct taxes, indirect taxes |
| JEL: | H2 H24 H25 J14 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2102e&r=all |
| By: | Edouard Ribes (CERNA i3 - Centre d'économie industrielle i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Date: | 2021–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03118783&r=all |
| By: | Wataru Kureishi; Hannah Paule-Paludkiewicz; Hitoshi Tsujiyama; Midori Wakabayashi |
| Abstract: | Most economic models assume that time preferences are stable over time, but the evidence on their long-term stability is lacking. We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. We provide new evidence that discount rates decrease with age and the decline is remarkably linear over the life cycle. Decreasing discounting helps a canonical life-cycle model to explain the household saving puzzles of undersaving when young and oversaving after retirement. Relative to the model with constant discounting, the model’s fit to consumption and asset data profiles improves by 40% and 30%, respectively. |
| Keywords: | time preferences, preference stability, discount rates, household saving puzzles |
| JEL: | D15 D91 E21 J10 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8935&r=all |
| By: | Benedicte Baduel; Asel Isakova; Anna Ter-Martirosyan |
| Abstract: | Sharing economic benefits equitably across all segments of society includes addressing the specific challenges of different generations. At present, youth and elderly are particularly vulnerable to poverty relative to adults in their middle years. Broad-based policies should aim to foster youth integration into the labor market and ensure adequate income and health care support for the elderly. Turning to the intergenerational dimension, everyone should have the same chances in life, regardless of their family background. Policies that promote social mobility include improving access to high-quality care and education starting from a very early age, supporting lifelong learning, effective social protection schemes, and investing in infrastructure and other services to reduce spatial segregation. |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/072&r=all |
| By: | Sana Tabassum (Indian Institute of Management Kozhikode); Ashok Thomas (Indian Institute of Management Kozhikode) |
| Abstract: | This paper investigates the impact of health shocks on wealth using four waves of data from English longitudinal Study of Ageing (ELSA). We investigate short, medium and long term impact of existing and new health conditions on the wealth of the elderly. The results reveal that onset of new health events lead to wealth depletion during the period in which they occur and the impact disappears over time. The impact of existing health conditions in maximum in short and medium term and declines in the long run. |
| Keywords: | Health shocks, Wealth analysis |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:371&r=all |
| By: | Fabio C. Bagliano; Carolina Fugazza; Giovanna Nicodano |
| Abstract: | How should workers invest over the life-cycle? Should they follow some typical prescriptions (“rules of thumb”) in personal finance implying higher equity investments when young? We show that the answer hinges on the risk of long-term unemployment spells, entailing permanent declines in workers’ future earnings prospects. Absent unemployment risk, extant prescriptions deliver portfolios that are close to optimal, implying negligible welfare losses. They instead lead to sizable welfare losses (3-9% of annual consumption) when the risk of human capital depreciation following long term unemployment is considered and realistically calibrated to the U.S. labor market. These losses stem from excess risk taking when young investors face uncertainty about future labor and pension incomes. This result points to a new design for pension plans offered by long-term institutional investors. |
| Keywords: | welfare, life-cycle portfolio choice, unemployment risk, long term unem ployment, age rules. |
| JEL: | D15 E21 G11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:616&r=all |
| By: | Costa, Carlos Eugênio da; Santos, Marcelo Rodrigues dos |
| Abstract: | Notional Defined Contributions (NDC) systems mimic the incentive structure of fully funded social security while preserving the Pay-as-you-go nature of most current systems. We study size-preserving social reforms which replace the current US system with alternative NDCs with many alternative contribution rules and deficit/GDP ratios. If one retains the current mandatory age-independent contribution rules we find change to an NDC to reduce welfare: the sacrifices in distributive and insurance properties are not compensated by the efficiency gains. NDCs are, however, flexible enough to allow for alternative contribution rules which increase welfare while preserving actuarial fairness. Contributions ought to be age-dependent and concentrated later on a worker’s career. The incentive structure induces an increase in capital accumulation that results, through general equilibrium effects, in welfare gains which are larger for low productivity workers, despite the increase in income inequality as captured by the Gini coefficient. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:822&r=all |
| By: | Goda, Gopi Shah; Levy, Matthew R.; Manchester, Colleen Flaherty; Sojourner, Aaron; Tasoff, Joshua |
| Abstract: | Defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment. Using administrative data on employer-sponsored retirement accounts linked to survey data, we estimate the relationship between retirement saving choices and individual characteristics – long-term discounting, present bias, financial literacy, and exponential-growth bias – under two distinct choice environments: an opt-in regime and an auto-enrollment regime. Consistent with our conceptual model, we find that the determinants of following the default and contribution behavior are regime-specific. Under the opt-in regime, financial literacy plays an important role in predicting total contributions, active saving choices, and maxing out contributions in the tax-preferred account. In contrast, under the auto-enrollment regime, present bias is the most significant behavioral predictor of contribution behavior. A causal interpretation of the estimates suggests that auto-enrollment increases saving primarily among those with low financial literacy. |
| Keywords: | present bias; exponential-growth bias; ousehold finance; retirement saving decisions; choice architecture; defaults; financial literacy; procrastination |
| JEL: | J1 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:102088&r=all |
| By: | Marit Hinnosaar |
| Abstract: | The paper estimates the causal impact of retirement on the healthiness of food purchases. The identification strategy uses early and full retirement ages as instruments for retirement. Using household-level scanner data, I find that retirement increases fruit and vegetable purchases and overall healthiness of food purchases. I also find indirect evidence that retirement increases the time spent on shopping and food preparation: it increases shopping frequency and shifts purchases to fresh and unprepared food products. This suggests that time constraints might play a role in limiting healthy food consumption. |
| Keywords: | Health behaviors, retirement, consumer behavior, dietary choice |
| JEL: | I12 L66 D12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:619&r=all |
| By: | Elena Bassoli (Department of Economics, University Of Venice Cà Foscari); Agar Brugiavini (Department of Economics, University Of Venice Cà Foscari; Institute For Fiscal Studies); Irene Ferrari (Department of Economics, University Of Venice Cà Foscari; Netspar) |
| Abstract: | This paper focuses on the changes in care provision at the time of the COVID-19 outbreak by exploiting variation in lockdown policies across Europe. We use the SHARE-COVID-19 survey, which involves about 50000 respondents of age 50 and over in 26 countries, to investigate how the stringency of the policy measures have affected care provision. Our study is based on the linkage of the SHARE-COVID-19 data with an individual specific “stringency index” which measures the intensity of the restriction policies and the degree of individual’s exposure. We find that older individuals, low-income individuals and people affected by limitations in everyday life faced a higher probability of receiving help because of the lockdown policies. Women and people in the age group 50-65 were more likely to provide help/care, but we also uncover a complex interaction with the labour market condition of caregivers. Lockdown policies hit hard individuals who were already receiving care as they experienced a form of rationing, both due to higher financial costs and travelling restrictions. Since these individuals are already among the most fragile in society, our evidence raises concern and calls for a re-design of the welfare system. |
| Keywords: | Care provision, caregiving, caregiver, COVID-19, SHARE data, SHARE-COVID-19 questionnaire, lockdown policies |
| JEL: | D1 I14 I18 J14 J16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2021:10&r=all |