nep-age New Economics Papers
on Economics of Ageing
Issue of 2023‒02‒13
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Stochastic Modellization of Hybrid Public Pension Plans (PAYG) under Demographic Risks with Application to the Belgian Case By Al-Hassan, Hassana; Devolder, Pierre
  2. Fixed and Variable Longevity Annuities in Defined Contribution Plans: Optimal Retirement Portfolios Taking Social Security into Account By Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
  3. Frames, Incentives, and Education: Effectiveness of Interventions to Delay Public Pension Claiming By Franca Glenzer; Pierre-Carl Michaud; Stefan Staubli
  4. Optimal social security timing By A. Y. Aydemir
  5. The Demographic Outlook: 2023 to 2053 By Congressional Budget Office
  6. Pricing and hedging of longevity basis risk through securitization By Zeddouk, Fadoua; Devolder, Pierre
  7. Jubilación Flexible y Compatible By José Ignacio Conde-Ruiz; Jesús Lahera Forteza
  8. Macroeconomic Effects of Climate Change in an Aging World By Mr. Vimal V Thakoor; Engin Kara

  1. By: Al-Hassan, Hassana (Univerisity of Mines and Technology); Devolder, Pierre (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: Aging is an important challenge for pension schemes, especially for social security plans mainly 􏰂nanced by PAYG (Pay as you go) and based on a DB formula (De􏰂ned Bene􏰂t). In particular, demographic risks induce important increases of the contributions and threaten the 􏰂nancial sustainability of such schemes. On the other hand, switching to De􏰂ned Contribution plans can be a solution in terms of funding but introduce signi􏰂cant risks in terms of social adequacy. The purpose of this paper is to study hybrid solutions between DB and DC in a stochastic environment. In particular, we simulate for various risk sharing strategies, the evolution of contributions and bene􏰂ts by introducing risk factors in􏰃uencing the demographic dependence ratio (fertility, longevity, baby boom). We study the mean evolution of these processes as well as their value at risk.
    Keywords: PAYG Pensions ; Dependency Ratio ; Musgrave ; Convex Combination ; Value at Risk
    Date: 2022–12–20
  2. By: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper investigates retirees’ optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected Social Security benefits. As an alternative, we also evaluate using plan assets to boost Social Security benefits through delayed claiming. We determine that including deferred income annuities in DC accounts is welfare enhancing for all sex/education groups examined. We also show that providing access to well-designed variable deferred annuities with some equity exposure further enhances retiree wellbeing, compared to having access only to fixed annuities. Nevertheless, for the least educated, delaying claiming Social Security is preferred, whereas the most educated benefit more from using accumulated DC plan assets to purchase deferred annuities.
    JEL: D91 G11 G14 G22 G53
    Date: 2023–01
  3. By: Franca Glenzer; Pierre-Carl Michaud; Stefan Staubli
    Abstract: Many near-retirees forgo a higher stream of public pension income by claiming early. We provide both quasi-experimental and survey-experimental evidence that the timing of public pension claiming is relatively inelastic to changes in financial incentives in Canada. Using the survey experiment, we evaluate the effect of two different educational interventions and different ways of framing the incentive to delay claiming. While all three types of interventions induce delays, these interventions have heterogeneous financial consequences for participants who react.
    Keywords: pension claiming; annuities; retirement; financial education; framing
    JEL: D91 H55 J14 J26
    Date: 2023
  4. By: A. Y. Aydemir
    Abstract: The optimal age that a retiree claims social security retirement benefits is in general a complicated function of many factors. However, if the beneficiary's finances and health are not the constraining factors, it is possible to formally derive mathematical models that maximize a well-defined measure of his total benefits. A model that takes into account various factors such as the increase in the benefits for delayed claims and the penalties for early retirement, the advantages of investing some of the benefits in the financial markets, and the effects of cost-of-living adjustments shows that not waiting until age 70 is almost always the better option. The optimal claiming age that maximizes the total benefits, however, depends on the expected market returns and the rate of cost-of-living adjustments, with the higher market rates in general pushing the optimal age lower. The models presented here can be easily tailored to address the particular circumstances and goals of any individual.
    Date: 2023–01
  5. By: Congressional Budget Office
    Abstract: In CBO’s projections, the U.S. population increases from 336 million people in 2023 to 373 million people in 2053, growing by 0.3 percent per year, on average, about one-third the pace experienced from 1983 to 2022 (0.8 percent). Over the next decade, immigration accounts for about three-quarters of the overall increase in the size of the population, and the greater number of births than deaths accounts for the remaining one-quarter. After 2033, population growth is increasingly driven by net immigration, which accounts for all population growth beginning in 2042.
    JEL: J10 J11 J13 J15
    Date: 2023–01–24
  6. By: Zeddouk, Fadoua (Université catholique de Louvain, LIDAM/ISBA, Belgium); Devolder, Pierre (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: Hedging the basis risk is a challenging issue for pension funds and insurers, who can be interested in longevity-linked securities to transfer their longevity risk. These derivatives are based on a given population data rather than their own policy data, which may lead to a potential loss due to data mismatch. In this paper we propose a pricing approach under Solvency II to evaluate the longevity basis risk through securitization, by associating this risk to the payo􏰀 of a longevity derivative. This method is then compared to other classical pricing methods used in finance. We assess and analyze di􏰀erent hedging strategies for 􏰁rms facing basis risk, using a multipopulation model based on a two-dimensional Hull and White model to represent the evolution of mortality over time.
    Keywords: Stochastic longevity risk ; longevity-linked securities ; Cost of Capital ; basis risk ; Solvency Capital Requirement ; multi-population mortality model
    Date: 2022–12–13
  7. By: José Ignacio Conde-Ruiz; Jesús Lahera Forteza
    Abstract: España envejece y va ser necesario adaptar tanto el mercado de trabajo como el sistema de pensiones a esta nueva realidad demográfica. La única vía para afrontar con éxito el reto del envejecimiento pasa necesariamente por utilizar parte de avances en la longevidad a producir o generar riqueza alargando la etapa laboral. Y para ellos urge cambiar radicalmente la forma en que nos jubilamos. Necesitamos alargar de forma flexible la etapa laboral y no podemos permitirnos seguir malgastando el talento senior. El objetivo de este artículo es analizar como habría que reformar la legislación española para poder aprovechar todo el potencial del talento senior en España.
    Date: 2023–01
  8. By: Mr. Vimal V Thakoor; Engin Kara
    Abstract: Climate and demographic changes are two major long-term trends that are evolving simultaneously. The global population is aging, while climate change is increasing the frequency and severity of weather-related disasters and lowering productivity. This paper examines the macroeconomic effects of these three changes in a common framework. Simulation results suggest that while aging drags down the real interest rate, climate change puts upward pressure on the real interest rate and inflation. As climate change intensifies, it will be the dominant factor shaping the macroeconomic variables. This results in higher inflation and a higher debt-to-GDP ratio, requiring tighter fiscal and monetary policies. The results further suggest that economic uncertainty induced by climate change amplifies these effects of climate change.
    Keywords: Demographic change; climate change; natural disasters; simulation result; results summary; disaster shock; effects of climate change; consumption share; Consumption; Aging; Real interest rates; Global
    Date: 2022–12–16

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