New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"Pensioners in the German Social Security System: Payments of Contribution and Benefits" 

MEA Discussion Paper No. 203-10

MARTIN GASCHE, University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA)
Email: gasche@mea.uni-mannheim.de

Pensioners receive pension payments as well as health insurance and nursing insurance benefits. But pensioners are also contributors to the health and nursing insurance. So the pensioners fund part of the expenditures they cause by themselves. This study takes a closer look at the different pensions (old-age pension, disability pension and widow and widower pension) and their characteristics such as the age distribution of pension recipients, the income structure or the income distribution. The social security contributions and the expenditures of the social insurance for pensioners will be determined age-specific and sex-specific. It can be stated that the contributions of the pensioners to the statutory health insurance are not sufficient to cover the caused expenditures starting at the age of 45 on average. Comparing the sum of contributions with the sum of expenditures leads to the conclusion that pensioners' contributions cover 44% of the expenditures of the statutory health insurance and 27% of the expenditures of the long term care insurance.

"Social Security Research at the Michigan Retirement Research Center" 

Social Security Bulletin, Vol. 69, No. 4, pp. 51-64, 2009

RICHARD V. BURKHAUSER, Cornell University - Department of Policy Analysis & Management (PAM), Syracuse University - Center for Policy Research
Email: rvb1@cornell.edu
ALAN L. GUSTMAN, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: Alan.L.Gustman@dartmouth.edu
JOHN LAITNER, University of Michigan at Ann Arbor - Department of Economics
Email: jlaitner@umich.edu
OLIVIA S. MITCHELL, University of Pennsylvania - Insurance & Risk Management Department, National Bureau of Economic Research (NBER)
Email: mitchelo@wharton.upenn.edu
AMANDA SONNEGA, University of Michigan at Ann Arbor - Michigan Retirement Research Center (MRRC)
Email: asonnega@umich.edu

The Office of Retirement and Disability Policy at the Social Security Administration created the Retirement Research Consortium in 1998 to encourage research on topics related to Social Security and the well-being of older Americans, and to foster communication between the academic and policy communities. The Michigan Retirement Research Center (MRRC) has participated in the Consortium since its inception. This article surveys a selection of the MRRC's output over its first 10 years and highlights several themes in the Center's ongoing research.

"Performance Measurement of Empirical and Theoretical Pension Investment Strategies" 

AGNIESZKA KAROLINA KONICZ, Festina Lente, University of Copenhagen - Laboratory of Actuarial Mathematics
Email: aga@festina-lente.com

This thesis deals with both the pension products offered by Danish pension providers and optimal saving contracts under various optimization criteria. Its approach is to analyse the investment strategies defining a given product, compare them with each other and suggest the best product given a pension saver's preferences. We develop a performance measurement methodology, which allows us to compare the products with different risks. Numerical results are obtained through a number of simulation studies. We consider pure unit-linked products, with-profit unit-linked products, mean-variance optimal strategies with pre-commitment and constant proportion portfolio insurance (CPPI) strategies with a terminal floor.

"Fair Demographic Risk Sharing in Defined Contribution Pension Systems" 

DANIEL GABAY, affiliation not provided to SSRN
Email: danielgabay@yahoo.com
MARTINO GRASSELLI, University of Padua, Ecole Superieure d'Ingenierie Leonard de Vinci (ESILV)
Email: grassell@math.unipd.it

In this article we relax the typical stationarity assumption on the population participating in a Defined Contribution pension scheme. We describe the demography with a general non stationary stochastic entry process and solve the problem of a social planner who aims at designing a fair (lump sum) pension contract including a minimum guaranteed benefit to the retirees of overlapping generations by smoothing the demographic fluctuations. Introducing the possibility to invest in a complete financial market, we solve the social planner (non Markovian delayed) stochastic optimization problem by duality and exhibit under which conditions the collective pension scheme can provide an additional benefit to its participants with respect to individual investment plans, even when investment opportunities are the same for the individuals and for the fund manager. This condition involves a coupling of demographic and market processes and leads to a comparison between past trajectories and future expectations.

"Adjusting Social Security for Increasing Life Expectancy: Effects on Progressivity" 

CRR (Center for Retirement Research) WP 2010-09

COURTNEY S. MONK, University of Oxford
Email: courtney.monk@economics.ox.ac.uk
JOHN A. TURNER, affiliation not provided to SSRN
Email: turnerjilo@aol.com
NATALIA ZHIVAN, Boston College - Center for Retirement Research
Email: natalia.jivan.1@bc.edu

Achieving long-run Social Security solvency requires addressing rising life expectancy. Increasing the Full Retirement Age (FRA), while holding the Early Entitlement Age (EEA) fixed, could be effective but eventually will result in replacement rates that are viewed by many as too low. A possible policy to prop up replacement rates is to raise the EEA, which has been age 62 for more than 40 years. However, an increase in the EEA introduces unfairness because the variation in life expectancy across socioeconomic groups is positively correlated with lifetime income. Using data from the Health and Retirement Study to investigate how earnings relate to mortality risk and health limitations, this project explores the possibility of constructing a flexible FRA that could preserve or even enhance the progressivity of Social Security benefits. If life expectancy were correlated with lifetime income, Social Security policy could use the AIME (Average Indexed Monthly Earnings) to target policies that are more equitable for people with both lower lifetime income and lower life expectancy. Unfortunately, we find that while life expectancy is strongly correlated with AIME for men, it is only weakly correlated for women, and when pooling the genders the correlation disappears. We then investigate whether targeting could be done by the max AIME, which is the AIME for single persons and the maximum of the husband's or wife's AIME for married couples. We find that the max AIME, which is a household measure of lifetime income, could be used for constructing a flexible FRA because it is negatively correlated with mortality risk and also negatively correlated with other measures of economic vulnerability or inability to work at older ages. With a flexible FRA, individuals in households with a low max AIME would have a lower FRA than other individuals.

"Social Security Policy Rejuvenation through Accelerated Growth in the Micro-Insurance Industry" 

BAMBANG HERMANTO, University of Indonesia
Email: bhermanto78@gmail.com
ALI SYED, affiliation not provided to SSRN
Email: alisyed200@gmail.com
RATNA DERINA, affiliation not provided to SSRN
Email: ratna.derina@adelaide.edu.au
ANNA AMALYAH AGUS, affiliation not provided to SSRN
Email: anna.agus@gmail.com
SIGIT S. WIBOWO, University of Indonesia - Management
Email: sigit.sw@ui.ac.id

The Indonesian workforce is dominated by workers in the informal sector, complicating the task of providing social security to workers nation-wide. The vast majority of these people have neither a plan to fund their retirement, nor income, health or life insurance coverage to protect them. From the year 2030, the Indonesian population will, collectively, be an aging one. This policy paper addresses the urgent need to begin post-retirement planning for the informal workforce. The Indonesian government has passed a law(No.40/2004) on social security, but fulfilling the aim of universal pension scheme coverage remains a distant goal. The International Labour Organisation (ILO) has identified microinsurance schemes as a viable solution for workers not covered by state social security. A number of pilot microinsurance projects have been undertaken by private insurance companies in Indonesia already. Although promising, challenges to expanding these projects remain. On the supply side, the highly dispersed distribution of informal workers creates economy of scale barriers for insurance companies in marketing products and providing services. Meanwhile, informal workers are often wary of insurance, put off by issues of trust, affordability or non comprehension. The authors argue that mobilising social networks can overcome the supply side issues, while improving financial literacy of the informal sector can help reduce perceptions of product complexity. Overcoming these barriers will require a coordinated approach involving insurance companies, central and local governments, industry associations, and the local social organisations.