Thursday, June 24, 2010

New papers from the Social Science Research Network


"Aging Asia's Looming Pension Crisis" Asian Development Bank Economics Working Paper Series No. 165

DONGHYUN PARK, Asian Development Bank - Economic Research

Due to population aging, weakening of family-based support, and other factors, old-age income support is becoming an issue of growing importance throughout Asia. This is especially true in East Asia and Southeast Asia where the demographic transition is already well under way. This paper provides a broad overview of the current state of the pension systems in People's Republic of China, Indonesia, Republic of Korea, Malaysia, Philippines, Singapore, Thailand, and Viet Nam; diagnoses the pension systems; and identifies their major structural weaknesses. Key systemic failures were found to be low coverage, inadequate benefits, lack of financial sustainability, and insufficient support for the elderly poor. The paper concludes with some specific policy directions for pension reform to strengthen the capacity of Asian pension systems in delivering economic security for the looming large and growing army of the elderly in the region.

"When can Insurers Offer Products that Dominate Delayed Old-Age Pension Benefit Claiming?" Netspar Discussion Paper No. 04/2010-011

LISANNE SANDERS, Tilburg University - CentER for Economic Research, Netspar
ANJA DE WAEGENAERE, Tilburg University - Center for Economic Research (CentER)
THEO NIJMAN, Tilburg University - Center and Faculty of Economics and Business Administration

It is common practice for public pension schemes to offer individuals the option to delay benefit claiming until after the normal retirement age and adjust the annual benefit level as a result. This adjustment is often not actuarially neutral with respect to the age at which benefits are claimed. The degree of actuarial nonequivalence varies by interest rates as well as individual characteristics such as gender and age. In this paper we show that actuarial nonequivalence can imply that deferring benefit claiming is suboptimal, irrespective of the preferences of the individual. Specifically, we derive preference-free conditions under which delaying benefit claiming is dominated by claiming benefits early, and using them to buy super-replicating annuity products from an insurance company. We find that the degree of actuarial nonequivalence in public pension schemes is such that such dominating strategies can exist even when the purchase of annuities would be significantly more costly than what is currently observed. If individuals choose to strategically exploit these dominating strategies, this will affect benefit claiming behavior, which in turn affects long run program costs.

"What Incentives to Retirement Does Social Security Provide? The Uruguayan Case (Qué Incentivos al Retiro Genera la Seguridad Social? El Caso Uruguayo) (Spanish)" Universidad de la Republica Department of Economics Working Paper No. 23/09

IGNACIO ALVAREZ, affiliation not provided to SSRN
NATALIA DA SILVA, affiliation not provided to SSRN
ALVARO FORTEZA, Facultad de Ciencias Socilaes, Universidad de la República, Uruguay
IANINA ROSSI, Universidad de la Republica - Departamento de Economía (dECON)

The activity rate of mature men has increased in Uruguay in recent decades. This trend is remarkably different from what has been observed in most developed and Latin American countries. We analyze in this paper the incentives to retire implicit in the main social security program of Uruguay. We find that mature men tend to experience significant social security wealth losses if they postpone retirement. These losses tend to represent a greater share of workers wages in Uruguay than in developed countries. The 1996 social security reform reduced the losses significantly and, in some cases, turned them into gains, providing incentives to postpone retirement. It is unclear yet what effects these changes will have on retirement. So far, only in the case of women a clear increase in the retirement age has been observed and it seems to have been caused by the increase in the minimum retirement age, rather than in changes in social security wealth.

"Income of the Elderly Population Age 65 and Over, 2008" EBRI Notes, Vol. 31, No. 6, June 2010

KENNETH J. MCDONNELL, Employee Benefit Research Institute (EBRI)

The U.S. retirement income system - including employment-based retirement plans, Social Security, individual savings, and post-retirement employment - can be assessed in part by examining the income of the current elderly population (age 65 and older). This paper reviews the latest available data on the older population's income (from the U.S. Census Bureau's March 2009 Current Population Survey) and how it has changed over time, as well as how the elderly's reliance on these sources varies across demographic characteristics. In 2008, Social Security was the largest source of income for those currently age 65 and older, accounting for 39.8 percent of their income on average. Pension and annuities income was 19.7 percent, income from assets 13.0 percent, and income from earnings was 25.6 percent. Nearly all individuals (89.2 percent) age 65 and over were receiving income from Social Security in 2008, while 55.3 percent received income from assets, 35.4 percent received income from pensions and annuities, and 20.4 percent received income from earnings.

The PDF for the above title, published in the June 2010 issue of EBRI Notes, also contains the fulltext of another June 2010 EBRI Notes article abstracted on SSRN: "Examination of the Short-term Impact of the COBRA Premium Subsidy and Characteristics of the COBRA Population."

"Comparative Costs and Risks for Sponsors of Traditional Defined Benefit, Defined Contribution, and Hybrid Plans" 

GAOBO PANG, Towers Watson

This stochastic simulation analysis quantifies the range of possible funding costs and volatilities for private sponsors of traditional defined benefit, defined contribution, and hybrid (cash balance) plans. Plan provisions of comparable benefit generosity are considered, as are current funding requirements and practice. The model simulations include a comprehensive view of the uncertainties in asset and labor markets. The results show that costs and risks for sponsors vary significantly with plan type, funding strategy and participant demographics. Throughout the scenarios, the hybrid plan exhibits good features of cost efficiency and risk reduction to the plan sponsor.

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