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We estimate impacts of exposure to an infant health intervention trialled in Sweden in the early 1930s using purposively digitised birth registers linked to school catalogues, census files and tax records to generate longitudinal data that track individuals through four stages of the life-course, from birth to age 71. This allows us to measure impacts on childhood health and cognitive skills at ages 7 and 10, educational choice during young adulthood, employment, earnings and occupation at age 36{40, and pension income at age 71. Leveraging quasi-random variation in eligibility by birth date and birth parish, we estimate that an additional year of exposure was associated with substantial increases in earnings and (public sector) employment among women, alongside no improvements for men. Earnings gains for women were concentrated in the top quintile of the distribution. The earnings results appear to be related to the intervention having made it more likely that primary school test scores for girls were in the top quintile of the distribution and, related, that they attended secondary school. The greater investments of women in education are consistent with their comparative advantage in cognitive tasks, but opportunities are also likely to have played a role. Our sample cohorts were exposed to a massive expansion of the Swedish welfare state, which created unprecedented employment opportunities for women.

The paper investigates the relationship between compositional inequality (how the shares of capital and labor income vary along income distribution) and inter-personal income inequality. Using a new methodology and data from 47 countries covering the period 1995–2018, we show that higher compositional inequality is associated with higher inter-personal inequality. This is clearly shown by Latin American countries and India. Nordic countries are exceptional because they combine high compositional inequality with low inter-personal inequality. Their exceptionalism is attenuated when pension income received from largely government-mandated accumulated savings is added to capital income. The analysis shows the theoretical possibility of societies where low compositional inequality may be combined with high income inequality. Currently, China and the United States come closest to that position.

We study whether pension fund board governance relates to asset allocation. Pension funds with well-governed boards have greater international diversification, lower cash holdings, and, when pension funds are small, invest more in risky assets. In particular, pension fund boards that establish comprehensive investment policies invest more in equities, in foreign assets, and hold less cash. We argue that a comprehensive investment policy is likely to serve as a proxy for the financial expertise available to the fund while it provides the set up to facilitate decision making. Finally, we further show that the presence of external financial experts is also associated with lower cash holdings.

As of 2022, the Dutch pension system will be overhauled. The success of this as well as other pension reforms also depends on how participants react to and accept such changes. We therefore studied participants’ attitudes, beliefs, and emotions toward the new pension system. We composed a text to inform them about the new system and qualitatively analyzed their responses. We investigated which beliefs and attitudes prevail among different age groups. The results show that many participants base their comments on previous experiences, misconceptions and (sometimes false) interpretations of the information in the text. Moreover, we find that young people are more optimistic, whilst older participants tend to feel victimized. Since the new Dutch pension rules have yet to be introduced, the results of our study contain valuable information for policymakers and pension funds who should acknowledge and address the oftentimes intense emotions, beliefs, and attitudes that influence the way that intentionally neutral information is perceived and accepted. A diversified communication strategy, mindful of different beliefs, emotions and attitudes among participants should help to empower citizens to get insight in their financial situation after retirement and to make informed choices.

In recent decades, there has been an increase in life expectancy and a rapid increase of the very senior dependency ratio in developed countries. In this context, we examine the optimal levels of public pensions and public long-term care (LTC) insurance. According to the most reasonable estimates of correlations among individual incomes, risks of mortality and dependency, we show that it is always desirable for a utilitarian social planner to have a balanced budget increase in LTC benefits at the expense of public pension benefits, until the cost of LTC is fully covered. This is true with or without liquidity constraints. For a Rawlsian planner, the balance between the two schemes depends on a comparison of the ratio of the survival probability to the dependence risk of the poor with its population average.

We study how pension participation and expected pension benefits affect the consumption of working-age adults based on a nationally representative dataset from the China Health and Retirement Longitudinal Study during the period 2011–2015. We find that working-age adults covered by the Employees’ Basic Pension, a compulsory public pension scheme for employees in the formal sector, have a consumption rate (total consumption to permanent income) that is 29.9 percentage points higher than those who do not participate in any public pension scheme. However, the Residents’ Basic Pension, a low-benefit voluntary public pension scheme for other residents, only promotes the consumption of working-age adults with a low income. Focusing on pension participants, we find that if working-age adults’ expected replacement rate (expected pension benefits at retirement to permanent income) increases by one percentage point, their consumption rate will increase by three percentage points. Working-age adults who are older, poorer, or live in a rural area increase their consumption more in response to the expected replacement rate. Nondurable consumption is more responsive to the expected replacement rate than durable consumption. Overall, our findings suggest that pension expectations are critical to the consumption decisions of working-age adults and can, therefore, affect total consumption.

The pension insurance schemes existence leads to moral hazard: the insured defined benefit pension plans tend to invest more heavily in risky assets. A possible countermeasure mentioned in the literature, but not yet analyzed, is the introduction of a restriction on the pension plans’ portfolio policy. The US context is chosen for analysis. We argue that a portfolio restriction is needed in the case of a sponsoring firm in financial difficulty having an underfunded pension plan. We prove that the restriction should respond to the objective of liability hedging. Estimation results suggest that the corresponding portfolio strategy is a low-risk policy. The paper recommends that the maximum equity proportion is fixed at 30%.

In this article we consider the post-retirement phase optimization problem for a specific pension product in Germany that comes without guarantees. The continuous-time optimization problem is defined consisting of two specialties: first, we have a product-specific pension adjustment mechanism based on a certain capital coverage ratio which stipulates compulsory pension adjustments if the pension fund is underfunded or significantly overfunded. Second, due to the retiree’s fear of and aversion against pension reductions, we introduce a total wealth distribution to an investment portfolio and a buffer portfolio to lower the probability of future potential pension shortenings. The target functional in the optimization, that is to be maximized, is the client’s expected accumulated utility from the stochastic future pension cash flows. The optimization outcome is the optimal investment strategy in the proposed model. Due to the inherent complexity of the continuous-time framework, the discrete-time version of the optimization problem is considered and solved via the Bellman principle. In addition, for computational reasons, a policy function iteration algorithm is introduced to find a stationary solution to the problem in a computationally efficient and elegant fashion. A numerical case study on optimization and simulation completes the work with highlighting the benefits of the proposed model.

PurposeThis study mainly aimed to show that financial literacy is not always enough in explaining workers' individual pension plan ownership as financial literacy knowledge does not always result in financially literate decisions/actions, and in such cases perceived consumer risks can be used to explain the IPP ownership decision of workers.Design/methodology/approachThe data were collected via a questionnaire adapted from earlier questionnaires using convenience and snowball sampling methods with Internet based applications such as Facebook, Twitter, Instagram and WhatsApp. T-tests, ANOVA and Chi-Square tests were conducted to find out if there is a relation/interaction between individual pension plan (IPP) ownership and financial literacy, and perceived consumer risks (N = 651).FindingsIt is found out that financial literacy level does not have a statistically significant relation with individual pension system (IPS) involvement of workers in Turkey, but perceived consumer risks show differences based on IPP ownership.Originality/valueTo the best of authors’ knowledge, this study contributes to the literature being the first paper to study the relationship between financial literacy and workers' IPP ownership decisions in Turkey and it also shows that perceived consumer risks can be used for explaining workers' IPS involvement in cases where financial literacy knowledge does not translate into financially literate decisions.

This paper presents a calculation of the estimated value of the time of old age pension receipt for individual birth cohorts of Czech males and females born in the period 1900-2020. It is assumed that people start to receive the pension at the moment of reaching retirement age and receive it until death. Starting with the birth cohort of 1966, two variants of retirement age determination are assumed: (a) a fixed retirement age threshold equal to 65 years for both males and females; and (b) a flexible retirement age (equal for males and females) defined in such a way that the average time of pension receipt would be equal to one quarter of the total expected total life span of people reaching senior age. The average lengths of pension receipt as well as the structure of adult persons from each birth cohort according to five-year time intervals of pension receipt (including the proportion of adult persons not surviving until retirement age) in the future are presented. Cohort life tables were used for calculations.

In the context of global aging population, improved longevity and ultra-low interest rates, the question of pension plan under-funding and adequate elderly financial planning is gaining awareness worldwide, both among experts, regulatory bodies, and popular media. Additional emergence of societal changes—Peer to Peer business model and Financial Disintermediation—have contributed to the resurgence of the concept of “Tontines” in various papers and the proposal of further models. These generalizations can offer efficient decumulation schemes with high longevity protection which is particularly well adapted for retirement needs—both for its members and carriers. In this paper, we revisit the mechanism proposed by Fullmer and Sabin (Journal of Accounting and Finance, 2019. https://doi.org/10.33423/jaf.v19i8.2615 )—which allows the pooling of Modern Tontines through a self-insured community. This “Tontine” generalization retains the flexibility of an individual design: open contribution for a heterogeneous population, individualized asset allocation and predesigned annuitization plan. The actuarial fairness is achieved by allocating the deceased proceedings to survivors using a specific individual pool share which is a function of the prospective expected payouts for the period considered. After a brief introduction, this article provides a formalization of the mathematical framework with prospective analysis, characterizes the inherent bias, generalizes the mechanism to joint lives, and analyses simulated outcomes based on various assumptions. A reverse moral hazard limit is exposed and discussed (the “Term Dilemma”). Some solutions are then proposed to overcome scheme shortcomings and some requirements for practical implementation are discussed.

Alternative assets represent an increasing share of pension fund assets, and real estate is a cornerstone of that allocation. This article investigates the trends in pension fund real estate investments over the past 3 decades, both in private and in public real estate, focusing on the performance of the asset class for the ultimate asset owners. The development of pension fund allocations to real estate differs across regions, with allocations increasing in Canada, stationary in the US, and shrinking in Europe. Slightly more than 10% of the real estate exposure is through publicly listed vehicles. Within the real estate portfolio, the authors observe a continuing increase in the use of external fund managers. Investment costs are stationary, with pension funds in the US structurally paying more to their external private real estate managers than their peers in Canada and Europe. Costs relating to public real estate are more equal across regions. In terms of performance, the authors observe rather stable total returns for both private and listed real estate over the past 3 decades, contrasting volatile performance of private equity and infrastructure. Intermediated investment management for private real estate is costly, leading to disproportionately lower net returns. TOPICS:Real estate, developed markets, pension funds, performance measurement Key Findings ▪ Current pension fund allocation to real estate is 8.3%, on average, with a 90/10 split between private real estate and public real estate. ▪ Pension funds deploy a wide range of real estate allocation strategies, with intermediation growing in popularity over the past decades. ▪ Real estate has provided stable returns over the past decades, with gross returns similar to stocks, and net returns in between bonds and stocks.

This study offers in-depth knowledge of the socio-economic characteristics of funded pension projects. It is based on the financial position of pension market actors during the transition of the pension system to a more funded capitalized scheme, mainly through the option benefit model. This is possible due to the fact that the economy is not viewed as a single earning cohort. The study analytically demonstrates a socio-economic anomaly in the funded pension system, which is in favor of high-earning cohorts at the expense of low-earning cohorts. This anomaly is realized due to lack of insurance and exposure to financial and systemic risks. Furthermore, the anomaly might lead to the pension re-reform back to an unfunded scheme, mainly due to political pressure. A minimum pension guarantee was found to be a rebalance mechanism to this anomaly, which increases the probability of a sustainable pension scheme. Specifically, it is argued that implementing a guarantee with an intra-generational, risk-sharing mechanism is the most effective way to reduce the impact of this abnormality. Moreover, the paper shows the convergence process toward implementing a minimum pension guarantee in many countries that have capitalized their pension systems during the last three decades, in particular in Latin America and Central and Eastern Europe.

A majority of career teachers in Missouri defined benefit pension plan reach their pension wealth peak before their 31st year of service. The 2002 pension enhancement in Missouri generates a local ...

On account of the current low interest rate phase, which is most likely to continue in the coming years, the average yields to be achieved in the bond, time deposit and savings product sectors are declining, so that risk-averse investors in particular have few opportunities to generate return-oriented retirement provisions. This scientific article analyzes the level of a possible safe withdrawal rate for diversified pension portfolios, considering historical returns and inflation rates. Consequently, this article provides immediate practical added value for a possible retirement provision. The evaluation is based on the consideration of historical returns of the stock and bond market in Germany. To determine a safe withdrawal rate, the development of portfolios with different compositions and inflation-adjusted withdrawal rates are simulated over periods of 15 to 35 years. In this simulation, the risky part of the portfolio is represented by German equities, the low risk part by German government bonds. To sum up, the empirical results show a maximum safe withdrawal rate of 4%. The underlying portfolio is composed of 50% equities and 50% government bonds. Particularly due to the outlined demographic change in Germany as well as the ongoing low-interest phase, the empirical study can provide significant theoretical and practical insights. Supplementary Information The online version of this article (10.1007/s12297-021-00504-1) contains supplementary material, which is available to authorized users.

Using national longitudinal survey data, we study how the Chinese New Rural Pension Scheme (NRPS) reform affects the rural labour supply structure of individuals aged 20–70. Applying multiple regre...

Using high-frequency Italian administrative data, the author studies the heterogeneous effects of a reform raising the normal retirement age (NRA) from 60 years to 65 years for private-sector male employees. The analysis, based on a difference-in-differences (DD) method, shows that the NRA raise reduces pension benefit claims but does not lead to a one-to-one increase in the employment rate since workers also apply for more disability and unemployment benefits. Moreover, most of them simply retire without any benefit. The extent of the effects varies substantially across socio-economic groups, as individuals with poorer health, with lower occupational grades and lower pay levels are the most constrained by the reform, experiencing the highest delay in pension claims, increase in employment, and inactivity. All in all, this paper shows that raising the NRA could have unintended effects as it affects more negatively the most vulnerable in the labor market.

The purpose of the paper is to analyse and examine legal changes and requirements that affect retirement conditions and retirement rights for women in BH. After a discussion of the theoretical background of the gender gap in pensions internationally and in BH, an opinion survey related to pension system reforms was conducted in FBH. The results show that almost 50% of respondents disagree with the statement that women and men should retire at the same age. The results of the binomial logit regression conducted indicate that pensioners and those who are close to the retirement age are less likely, and men are more likely to respond positively to this statement. We conclude that there is a discrepancy between the desire to eliminate gender disparities in pensions and the willingness to conduct necessary reforms since they come as a bitter pill to swallow.

Post-socialist governments are looking for the best options to implement a fully funded pension system along with a pay-as-you-earn pension scheme. The paper aims to establish the impact of pension assets on economic growth using the example of post-socialist countries (Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic). The use of methods of correlation and regression analysis allows determining the type of dependence (linear, exponential, gradual, and logarithmic) of countries’ economic growth indicators on pension assets and patterns for their investment (deposits, securities of public and private sectors). The obtained economic growth indicators of the studied post-socialist countries show a strong logarithmic dependence on the size of pension assets: Gross fixed capital formation depends on changes in the pension asset amount by 76.44% and GDP by 71.01%. The economic growth of the studied post-socialist countries is most significantly influenced by pension assets invested in deposits. Investing pension savings in public and private sector securities is less effective. The proved provisions determine the expediency of moving from the predominant pay-as-you-earn pension scheme to the predominant fully funded pension system for Ukraine. Such a transformation requires a stable and efficient construction of the country’s banking system, a developed policy for reforming the pension system while considering the criteria of the internal demographic, social, and financial situation.

A seminal result Yaari holds that all pension savings should be in life-annuities. Annuities offer a higher return than standard assets and diversify mortality risk and therefore it is individually optimal to save in annuities only. This is a cornerstone result in the pensions literature where many attempts have been made to explain that individual savings in annuities is very low, the socalled annuity puzzle. But is the result that all pension savings should be in life-annuities also socially optimal? We show in a standard setting with fair annuities and dynamic efficiency that full annutization of all pensions saving is not socially optimal. Less than full annutization implies unintentional bequests and thus transfers from the old to the young, which is welfare improving under dynamic efficiency. Further, we show that no annutization can implement the Golden Rule capital stock level and analyse whether some annutization is socially optimal using a numerical analysis, which shows that it is the case under a wide range of parameter constellations.

In this paper we structurally estimate a life-cycle model of consumption/savings, labor supply and retirement, using data from the Australian HILDA panel. We use the model to evaluate effects of the Australian aged pension system and tax policy on labor supply, consumption and retirement decisions. Our model accounts for human capital accumulation via learning by doing, as well as wealth accumulation and decumulation over the life cycle, uninsurable wage risk, credit constraints, a non-absorbing retirement decision, and labor market frictions. We account for the “bunching” of hours by discretizing job offers into several hours levels, allowing us to investigate labor supply on both intensive and extensive margins. Our model allows us to quantify the effects of anticipated and unanticipated tax and pension policy changes at different points of the life cycle. Our results imply that the Australian Aged Pension system as currently designed is very poorly targeted, so that means testing and other program rules could be improved.

Pension and housing wealth fell substantially during the Great Recession in many industrialized countries. This raised questions about the development of retirement savings adequacy. Using a unique combination of survey and administrative panel data from before and after the Great Recession in the Netherlands, we investigate co-movements between wealth and retirement expenditure goals. We separate ‘pure’ wealth effects from macro factors such as general pessimism. The estimates show that a shock in annuitized pension wealth of 100 euros reduced retirement expenditure goals with 23-33 euros. Whereas pensions drive the revision of goals for older indi- viduals, the results indicate that individuals between the ages of 25 and 49 are more sensitive to housing wealth. Furthermore, while other studies find that the reaction of current consumption to financial shocks is relatively strong for low-income households, we document that long term expenditure goals are adjusted more by high-income households. Simulations show that the fraction of individuals falling short with regard to their own retirement expenditure goal would almost have doubled during the Great Recession if individuals would not have adjusted their retirement expenditure goals downward.

The socio-economic situation in modern Spain is complex in many aspects, which makes it possible to characterize the current state of affairs as a multidimensional crisis. The Spanish case shows the interconnection of demographic processes with structurally complicated social phenomena. An over-view of the demographic decline and birth rate drop are examined, as well as the plight of young Spaniards as a result of the COVID-19 coronavirus pandemic is given. The article also explores the problems of elder generation going through difficult times. On the basis of statistical data, the authors analyze the medium-term prospects in the dynamics of population panorama, examine the impact of the migration factor, and show how the changing age structure and its attendant consequences pose an ever-wider range of issues for society, concerning both the younger generation and other age groups. From the perspective of demographic transformations, the article observes the situation in the pension sector, in light of the fact that Spain is one of the rapidly aging countries. The methodological approach used by the authors for a comprehensive analysis of demographic and socio-economic problems makes it possible to identify a range of interrelationships between the most important pillars of the Spanish social model. © 2021 Institute of Europe Russian Academy of Sciences. All rights reserved.

This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that determine the retirement decision of the elderly. We then examine analytically as well as numerically the long-run impact of labor participation of the elderly on capital accumulation and income distribution.

This study analyzes a longevity insurance for defined-contribution (DC) systems, using the case of Chile to evaluate its potential implementation. In the current context of increasing longevity and low interest-rates it has become important to find the most efficient formulas for both funding pensions and covering longevity risk, not only for countries with mandatory DC systems, but for pension systems in general. The proposed longevity insurance, in addition to covering the risk to survive longer than expected, it is also able to increase the level of pensions paid to insured workers by allowing the use of savings to fund retirement ages with high probability of being alive, and using income from deferred annuities at ages when the surviving probability is low for most of the pensioners.

Pension funds face macro-longevity risk or uncertainty about future mortality rates. We analyze macro-longevity risk sharing between cohorts in a pension scheme as a risk management tool. We show that the optimal risk-sharing rule and the welfare gains from risk sharing largely depend on the retirement age policy. In case of a fixed retirement age welfare gains from sharing macro-longevity risk measured on a 10-year horizon are between 0.1 and 0.3 percent of certainty equivalent consumption after retirement for each cohort. By contrast, if the retirement age is fully linked to changes in life expectancy, welfare gains are substantially higher. In this case the risk bearing capacity of workers is particularly large because their labor supply acts as a hedge against macro-longevity risk. As a result, workers absorb risk from retirees in the optimal risk-sharing rule, thereby increasing the welfare gain for each cohort up to 1.8 percent in the Lee-Carter mortality model and up to 2.9 percent inthe Cairns-Blake-Dowd model.

Bravo, J. M., Ayuso, M., Holzmann, R., & Palmer, E. (2021). Addressing the life expectancy gap in pension policy. Insurance: Mathematics and Economics, 99, 200-221. https://doi.org/10.1016/j.insmatheco.2021.03.025 Understanding the systematic relationship between period and cohort life expectancy and how the relationship evolves over time are critical issues in formulating the design of retirement income products, evaluating the actuarial balance of pension schemes, and more generally for all analyses where demographic projections are involved. In this study, estimates of the life expectancy gap at all ages are performed using data for 1960–2018 from the Human Mortality Database and projections are generated through 2050 for the 42 national populations, disaggregated by sex. Contrary to previous research that often uses a single deemed to be «best» model to forecast mortality rates, we use a novel adaptive Bayesian Model Ensemble of heterogeneous parametric generalized age-period-cohort stochastic mortality models, principal component methods, and smoothing approaches. The procedure involves both the selection of the model confidence set and the determination of optimal weights. Model-averaged Bayesian credible prediction intervals are derived accounting for both the uncertainty arising from model error and parameter uncertainty. With intergenerational actuarial fairness and neutrality as the guiding principles the study then explores potential policy interventions to address the consequences of the life expectancy gap - spanning over adjustments in the accumulation, benefit determination, and payout stages. Comprehensive numerical results are provided for two policy options: (i) introducing a sustainability factor; and (ii) conditional pension indexation. The results show that: (i) the life expectancy gap is positive and significant for almost all countries and years studied, (ii) it will continue to increase, (iii) the magnitude of the subsidy rates between generations can be sizeable demanding important initial pension benefit reduction and/or a gradual diminution in the annual indexation rate of pensions to correct them. authorsversion published

We design a coherent cohort-based multi-population mortality model, calibrate it to national mortality rates in the Eurozone using Human Mortality Database data, and use it to project developments in national mortality across the Eurozone. Combining this model with a stylized model of social security pensions in each country allows us to calculate the pension mortality risk in these systems and estimate the benefits of pooling it across the Eurozone. We examine three risk pools, which are all actuarially fair, but differ in how undiversifiable risk is allocated across countries. The first naive approach allocates undiversifiable risk in proportion to GDP, a second according to a CAPM-based measure of the undiversifiable risk each country contributes to the pool and a third ensures that the aggregate benefits of diversification are shared equitably across countries using a measure we adopt. In all cases, the benefits of risk pooling increase over time as mortality uncertainty accumulates, but fall over time as cross-country correlation increases due to the long-term dominance of the mortality trend, which by assumption is shared between countries. The peak benefit occurs around 2050, with an aggregate reduction in the standard deviation of pension expenditures of around 0.11% of GDP, or 3% of pension expenditure at the 99th percentile. We find that allocating undiversifiable risk proportional to GDP does not ensure an efficient allocation of undiversifiable risk across countries, given that different countries have markedly different pension mortality risk due to different pension system generosities as well as different mortality correlation with the Eurozone. Based on our results we propose a contract design that surmounts most of the moral hazard risks created by the pool, and suggest directions for future research.

The fact that individuals are living longer and thus spending more time in retirement challenges the sustainability of pension systems. This has forced policy makers to rethink the design of pension plans to mitigate the burden of increased longevity. Countries such as the Netherlands, Estonia, Denmark and Finland have implemented reforms that link retirement age to changes in life expectancy. However, the demographic and financial implications of such linkages are not well understood. This study analyses the Danish case, using high-quality data from population registers during the period 1985-2016. We identify trends in demographic and actuarial measures after retirement by sex and socio-economic group. We also introduce a new decomposition method to disentangle the demographic sources of socio-economic disparities in pension costs per year of expected benefits. We reach two main results. First, linking retirement age to life expectancy increases uncertainty about length of life after retirement, with the financial cost becoming more sensitive to changes in mortality. Second, socio-economic disparities in lifespans persist regardless of the age at which individuals retire. Males from lower socio-economic groups are at a greater disadvantage, because they spend fewer years in retirement, pay higher pension costs per year of expected benefits and are exposed to higher longevity risk than the rest of the population. This disadvantageous setting is magnified when retirement age is linked to life expectancy.

Over the last three decades, academic research has sought to understand how cash shortfalls impact a firm’s ability to take all available value-increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference-in-difference research design, we predict and find that pension firms experience a decrease in their cash effective tax rates by 1.8 to 2.4 percentage points after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19 percent. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms’ broader corporate business strategies in responding to financing constraints.

Purpose Deferred annuities, which offer longevity insurance with relatively low premiums, are a potential payout option in defined contribution (DC) pension plans in Japan. This study aims to measure individual preferences for these annuities. Design/methodology/approach This study conducts stated choice experiments using an original internet survey. This methodology provides a decision-making scenario similar to that faced by individuals when making real retirement saving decisions. Subjective valuations of deferred, immediate and term annuities are compared. Findings This study finds that male individuals have an insignificant preference for deferred annuities – the benefits of which begin at an advanced age. On average, deferred annuities are considered a gamble, betting against life and individuals who are married and have higher financial assets tend to value them less. Originality/value While previous studies, based on theory and simulations, have found that deferred annuities should be included in individual retirement assets, this study examines annuity preferences from the demand side (i.e. DC plan participants) –an approach that has not been addressed in the literature.

In this paper we analyse expected liquidity driven changes in asset allocation of Croatian mandatory and voluntary pension funds based on long-term cash flow projections. For mandatory pension funds, expected long-term cash flow are simulated taking into account the life-cycle scheme, changes in the default fund for undecisive newcomers, expected returns of funds and certain demographic and economic assumptions. Analogously, cash flow simulations of voluntary pension funds are simulated, with an additional scenario of short-term outflows due to the possibility of withdrawing earlier. The growing need for liquidity of pension funds is expected to impact their asset allocations through the endeavour for more liquid portfolios even in a baseline scenario. In the case of more severe assumptions of various parameters of the model, the liquidity-driven reallocation is expected to influence long-term returns of pension funds that experience negative or low net inflows, and subsequently lead to negative liquidity premium.&nbsp

Cross-country estimation work consistently finds that coefficients on statutory pension ages are positive and highly statistically significant in explaining labour force participation at older ages. However, the estimated effects are surprisingly modest when translated into the implied effect on the average effective age of retirement, which typically only increases by about 2 months for every year by which the statutory retirement age increases. This paper shows that grouping countries with similar pension systems, allowing for time heterogeneity and introducing other modelling choices, can improve the estimates of the effect of changes to the pension system. In countries in which there are alternative early retirement pathways or voluntary private pension systems, the effect of changes in statutory retirement ages tends to be dampened. However, for other countries, the effect of changes in statutory pension ages can be around two to three times larger than the typical finding from pooled country estimations.Keywords: pension funds, defined contribution system, life-cycle investing

The significance of retirement savings and private pension funds increased in the latest decades and gathered important amounts of capitals. The purpose of this paper is to investigate the macroeconomic effects of pension systems from an investment perspective in five Central and Eastern European countries. The analyzing process regarding several underlying macroeconomic effects of pension systems started from the premises that there is a strong connection between the structure of pension systems, the national economy and the development of the financial sector. The econometric tests were processed and applied by using pool data regression models and the method Pooled Instrumental Variables (IV) - Two-stage Least Squares (2SLS). The main conclusion highlights that the interest rate at deposits is correlated with the amount of incomes earned by population, inflation rate, severe material deprivation rate and the investment strategy of private pension funds.

Policies may change the incentives that allow cultural practices to persist. To test this, I study matrilocality and patrilocality, kinship traditions that determine daughters’ and sons’ post-marriage residences, and thus, which gender lives with and supports parents in their old age. Two separate policy experiments in Ghana and Indonesia show that pension policies reduce the practice of these traditions. I also show that these traditions incentivize parents to invest in the education of children who traditionally coreside with them. Consequently, when pension plans change cultural practices, they also reduce educational investment. This finding further demonstrates that policy can change culture. (JEL G51, I20, J15, J16, J32, Z13)

In this work, we consider rule-based investment strategies for managing a defined contribution pension savings scheme, under the Dutch pension fund testing model. We find that dynamic, rule-based investment strategies can outperform traditional static strategies, by which we mean that the investor may achieve the target retirement income with a higher probability or limit the shortfall when the target is not met. In comparison with dynamic programming-based strategies, the rule-based strategies have more stable asset allocations throughout time and avoid excessive transactions that may be hard to explain to an investor. We also study a combined strategy of a rule-based target with dynamic programming. A key feature of our setting is that there is no risk-free asset, instead, a matching portfolio is introduced for the investor to avoid unnecessary risk.

Tax deferred assets (TDAs) such as 401(k)s cannot be directly valued with other assets such as homes and stocks because TDAs carry a substantial deferred tax liability on withdrawal. I also net out implicit taxes on accrued capital gains and compare pre-tax and post-tax wealth. The empirical analysis covers 1983-2016 based on the Survey of Consumer Finances for conventional net worth, NW, and augmented wealth, AW, the sum of NW, pension wealth PW, and Social Security wealth SSW. Like TDAs, defined benefit pension and Social Security benefits are taxed on receipt. Netting out implicit taxes lowered PW by 24% in 2016. It also devalued SSW by 14%, NW by 5%, and AW by 8% but the reduction was lower in the 1980s. Subtracting implicit taxes lowered PW and SSW inequality but had no appreciable impact on NW or AW inequality. I also consider the bequest value BV of wealth, including death benefits. While TDAs are still subject to income tax at withdrawal, other assets are valued on a step-up in basis. BV was considerably greater than NW but BV inequality notably lower. When estimated estate taxes due on death are subtracted, BV was substantially lowered and its inequality sharply reduced.

This study investigates herd behavior exhibited by pension funds in the sovereign bond market before, during and after the European debt crisis. It uses unique monthly data on sovereign bond holdings of pension funds and transactions between December 2008 and December 2014. The dataset covers 67 large Dutch pension funds that invest in bonds from 109 countries. We find evidence of intensive herd behavior of Dutch pension funds in sovereign bonds. We also distinguish between European countries which suffer from the European debt crisis, such as Cyprus, Greece, Ireland, Italy, Portugal and Spain, and those that have not. We find high sell herding and low buy herding for the crisis countries during the European debt crisis, whereas in the non-crisis period their herd behavior does not differ substantially from that in non-crisis countries. When we control for institutional, macroeconomic, financial market and pension fund factors, sell herding in crisis countries is still significantly higher. However, we find no evidence of destabilizing behavior with respect to bonds of crisis countries during the European debt crisis.

In this paper, we analyse retirees’ decision-making from the different bids made available by life insurance companies in the Chilean annuity market. We find that choosing the highest annuity payout was positively (negatively) correlated with the advice given by independent brokers (sales agents and average years of education in the municipality) for a January 2008–May 2018 sample. We also found that retirees were willing to pay for firm reputation. In addition, people who are more likely to take a pension payout without consulting intermediaries are older, married, have a higher pension balance and purchase an immediate annuity. These findings are of interest to those seeking to improve the efficiency and effectiveness of the annuity system.

Old-age pension reform is on the agenda across the OECD, and a key target is to delay retirement. Most of these countries also have a disability insurance (DI) program accounting for a large share of labor force exits. This paper builds a quantitative life-cycle model with endogenous retirement to study how DI and old-age pension (OA-pension) systems interact with health and wages to determine retirement age, with particular focus on the macroeconomic effects of OA-pension reforms. Individuals face uncertain future health status and wages, and if in bad health they are eligible for DI if they choose to retire before reaching the statutory retirement age. I calibrate the model to the Norwegian economy and explore the effects of raising the statutory retirement age and cutting OA-pension on labor supply and public finances. The main contribution of the paper is that I, in contrast to standard macro pension models, include DI as another endogenous margin of retirement. I show that failure to account for this margin might severely bias the analysis of OA-pension reforms.

In this paper, I examine leisure complementarities in the joint retirement decisions of couples by quantifying the effect of the 2011 Norwegian pension reform. The reform abolished an earnings test on early retirement benefits for private‐sector workers, but not for public‐sector workers. I analyze population‐wide registry data on labor market participation, and I consider couples where the focal partner works in the public sector with a spouse employed either in the private sector (treatment group) or the public sector (control group). I find that spousal spillovers account for over 40 percent of the aggregate employment effect for women. They claim fewer early retirement benefits, and both men and women pay additional labor income taxes. In total, government budgets improved by approximately $46 million as a result of the spousal spillover effect between 2012 and 2015.

World practice shows that non-state pension funds (NPFs) are not only a tool for supplementary pensions, but also a source of significant investment in the economy. This study aims at determining the investment potential of 65 Ukrainian NPFs currently functioning in the country. The analysis of Ukrainian NPFs has shown their insignificant role as an investment resource (the volume of their assets is 0.09% of GDP). At the same time, NPFs operate with significant funds (UAH 3.1 billion in 2019), but the lack of a developed stock market and effective financial instruments in the country narrows the opportunities for their investment activities. A study of the structure of NPF assets allocation showed that it is far from optimal in terms of investment portfolio diversification and is very conservative – almost 85% of invested NPF assets are government guaranteed securities and funds in bank deposit accounts. But in the context of tightening the requirements for disclosure of information on the activities of NPFs, promoting the stock market development, formation of reliable mechanisms to protect depositors’ pension savings,and formation of an effective investment portfolio, NPFs in Ukraine

Pension systems are strained with negative impacts on the state budget as a consequence of the endangering trend of worsening demographic structure and population aging. The aim of this paper is to map trends of employment rates of persons 65-69 years old in the Czech Republic and Slovakia between 1998 and 2017 and to analyse selected determinants affecting these rates. These determinants are then subjected to statistical and regression analysis using panel data for the period 1998-2017. Based on the analysis results, the authors come to three conclusions for both countries: firstly, the increase in pensions is not a limiting factor in the employment of persons aged 65-69; secondly, the participation of persons with tertiary education is of great relevance, implying the need for support to tertiary education; thirdly, the results confirmed the significance of the health determinant of persons aged 65-69, ensuing the need for stimulating investment in health.

The regulator in Europe calls for the market-consistent valuation of the insurance liabilities that usually are not (fully) tradable. An example of such liabilities is the participating pension contract that is generally long-dated and vulnerable to the medium-time dynamics of the underlying risk drivers. Dealing with these characteristics requires time-consistent pricing. However, the well-known non-linear premium principles, often used as pricing operators, are not time-consistent. Based on this motivation, we study the time-consistent and market- consistent (TCMC) actuarial valuation of the participating pension contracts with hybrid payoff. We use a standard profit-sharing mechanism with guaranteed interest rate, and generalize it to a hybrid profit-sharing mechanism with the actuarial and hedgeable financial risks, over the course of the contract. Market-consistency is maintained by "two-step actuarial valuation" in a one-period setting. Time-consistency is obtained by a "backward iteration" of these one-period two-step valuations over the predetermined sub-intervals of the valuation period. We use the Least-Square Monte-Carlo method to implement the conditional operators in the backward iteration. We compare the results of TCMC price to the expected value of the discounted payoff and measure the relative risk loading and time-consistency risk premium. Besides, we investigate the effect of the stochastic interest rate as compared to the deterministic one.

Do people put their pension savings on the table to promote sustainability? We answer this question in a large-scale field experiment (n = 3,256). The pension fund in our study gave its members a real vote for more or less sustainable investments. A comparison group made the same decision, but hypothetically. We find that 66.7% of the participants favor to invest their pension savings in a sustainable manner. This choice is driven by social preferences. As a result of these strong social preferences we find no difference between the real and hypothetical treatment groups. We rule out financial beliefs, confusion, or a lack of information as explanation. Institutional investors benefit from taking their clients' social preferences seriously, with consequences for asset prices and the fulfillment of the United Nations Sustainable Development Goals.

Во многих странах неформальная занятость и занятость в неформальном секторе традиционно рассматриваются в качестве ключевых разновидностей уязвимого и незащищенного труда. Они по определению сопряжены с отсутствием официального трудового договора или контракта и поэтому представляют собой один из важнейших вызовов для современной пенсионной системы и системы социальной защиты. Наибольшие риски вовлеченности в неформальную занятость несут те представители рынка труда, которые по тем или иным причинам сталкиваются с ограничениями в возможностях трудоустройства на формальных рабочих местах. Среди них – занятые старших возрастов. В настоящей работе на данных Обследования рабочей силы (ОРС) Росстата за 2000, 2005, 2010 и 2015 гг. впервые подробно рассмотрены масштаб, динамика и структура занятости в неформальном секторе работников предпенсионного и пенсионного возраста, а также долгосрочные тенденции социально-демографических и профессионально-отраслевых характеристик, которые ранее не являлись предметом целенаправленного изучения. Полученные результаты свидетельствуют о том, что к 2015 г. на российском рынке труда в неформальном секторе было занято более 3 млн человек старше 50 лет, при этом неформальность получила наибольшее распространение среди работников преклонного возраста (старше 65 лет). Одновременно наблюдалась тенденция к возрастающей деформализации занятости работников 50–54 лет, которая может объясняться ухудшением перспектив поиска работы и карьерного продвижения для занятых в ранних предпенсионных возрастах. Важнейшей характеристикой российской неформальной занятости является возрастающее сближение образовательной и профессионально-отраслевой структуры работников разных возрастов. Основные риски неформальной занятости среди работников старше 60 лет перемещаются от наиболее низких уровней образования (основное общее, начальное или без образования) к среднему профессиональному и среднему (полному) общему образованию. Именно они связаны с наибольшими рисками неформальности и в основных трудоспособных возрастах, и среди 50–59-летних неформальных работников. Помимо этого, работники старших возрастов трудятся в тех же отраслях и профессиях неформального сектора, что и более молодые его представители, что демонстрирует универсальный характер спроса на труд в неформальном секторе, в котором находят работу как молодые, так и пожилые работники. Отмеченное сближение структуры занятости в неформальном секторе работников разных возрастов, сочетающееся с будущим вступлением в старшие возраста более многочисленных когорт и возрастающей деформализацией занятости 50–59-летних, может привести к дальнейшей экспансии неформальности на российском рынке труда.

Using funded and unfunded pillars, the optimal pension structure is estimated using an over-lapping generation model, calibrated to the average OECD countries. While simulating different pillar sizes, a socio-economic characteristic was revealed in which low-earning groups are prone to unexpected market risks than high-earning cohorts and support a larger contribution than better-off individuals. This led to high contribution rates for funded pillars and low contributions rates for social security pillars. This suboptimal allocation leads to inefficient hedging capability for the pension portfolio. An alternative is a minimum pension guarantee as an efficient system stabilizer as it rebalances the economic cost among different earning cohorts. However, the guarantee might be expensive to implement if not capitalized early in the working phases in an era of aging populations, low birth rates, and deep financial crisis.

We find that segments of society who have shorter life expectancy can expect a lower income from their pensions and lifetime utility due to the longevity of other groups participating in the same pension scheme. Linking the pension age to average life expectancy magnifies the negative effect on the lifetime utility of those who suffer low longevity. Furthermore, when the income of those with greater longevity increases, those with shorter life expectancy become even worse off. Conversely, when the income of those with shorter life expectancy increases, they end up paying more into the pension scheme, which benefits those who live longer. The relative sizes of the low and high longevity groups in the population determine the magnitude of these effects. We calibrate the model based on data on differences in life expectancy of different socio-economic groups and find that low-income workers suffer from a 10-13 percent drop in pension benefits from being forced to pay into the same scheme as high-income workers.

This paper studies the large concentration of retirement behavior around statutory retirement ages, a puzzling stylized fact. To investigate this fact, I estimate bunching responses to 644 pension benefit discontinuities, using administrative data on the universe of German retirees. Financial incentives alone cannot explain retirement patterns, but there is a large direct effect of statutory retirement ages. I argue that the framing of statutory ages as reference points for retirement provides a plausible explanation. Simulations based on a model with reference dependence highlight that shifting statutory ages via pension reforms is an effective policy to influence retirement behavior. (JEL D91, H55, J26, J32)