Friday, October 4, 2013

New papers from the Social Science Research Network

"Pensions and Fertility: Back to the Roots - The Introduction of Bismarck's Pension Scheme and the European Fertility Decline"
CESifo Working Paper Series No. 4383
ROBERT FENGE, University of Rostock - Department of Economics
BEATRICE D. SCHEUBEL, European Central Bank (ECB), Ludwig Maximilians University of Munich - Center for Economic Studies (CES)
Fertility has long been declining in industrialised countries and the existence of public pension systems is considered as one of the causes. This paper is the first to provide detailed evidence based on historical data on the mechanism by which a public pension system depresses fertility. Our theoretical framework highlights that the effect of a public pension system on fertility works via the impact of contributions in such a system on disposable income as well as via the impact on future disposable income that is related to the internal rate of return of the pension system. Drawing on a unique historical data set which allows us to measure these variables a jurisdictional level for a time when comprehensive social security was introduced, we estimate the effects predicted by the model. We find that beyond a general depressing effect of social security on birth, a lower internal rate of return of the pension system is associated with a higher birth rate and a higher contribution rate is associated with a lower birth rate.
"Reducing Retirement Risk with a Rising Equity Glide-Path"
WADE D. PFAU, The American College
MICHAEL E. KITCES, The Kitces Report & Nerd's Eye View, Pinnacle Advisory Group
This study explores the issue of what is an appropriate default equity glide-path for client portfolios during the retirement phase of the life cycle. We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios. This result may appear counter-intuitive from the traditional perspective, which is that equity exposure should decrease throughout retirement as the retiree’s time horizon (and life expectancy) shrinks and mortality looms. Yet the conclusion is actually entirely logical when viewed from the perspective of what scenarios cause a client’s retirement to “fail” in the first place. In scenarios that threaten retirement sustainability – e.g., an extended period of poor returns in the first half of retirement – a declining equity exposure over time will lead the retiree to have the least in stocks if/when the good returns finally show up in the second half of retirement (assuming the entire retirement period does not experience continuing poor returns). With a rising equity glide-path, the retiree is less exposed to losses when most vulnerable in early retirement and the equity exposure is greater by the time subsequent good returns finally show up. In turn, this helps to sustain greater retirement income over the entire time period. Conversely, using a rising equity glide-path in scenarios where equity returns are good early on, the retiree is so far ahead that their subsequent asset allocation choices do not impact the chances to achieve the original retirement goal.
"Public Sector Pensions: Options for Reform from the Saskatchewan NDP" Free Download
Fraser Institute Publication, Sept. 2013
MARK MILKE, Fraser Institute
GORDON B. LANG, Gordon B. Lang & Associates Inc.
In 2011, just over six million Canadians were enrolled in some type of registered pension plan (RPP). In the public sector, 87.1% of employees were covered by an RPP — up from 75.5% in 1978. In the private sector, just 24.4% of employees were enrolled in an RPP in 2011, down from 35.2% in 1978.
In 1974, of those enrolled in a registered pension plan, 98.8% of public sector workers were in a defined benefit plan, which had decreased 94.0% by 2011. In the private sector, 88.0% of private sector workers were in a defined benefit plan in 1974 but that declined to 52.3% by 2011. In the private sector, significant growth has occurred in defined contribution and “other” registered plans.
Actuarial assumptions about major provincial public sector pension plans have been too optimistic, which has had consequences for public treasuries. In fact, increased contribution rates and/or bailouts for public sector pension plans have been the norm among the major plans, not the exception. Since the year 2000, taxpayers have seen repeated increases in the contribution rates to public sector pension plans, this to ameliorate pension fund shortfalls. In addition, taxpayers have also been required to bail out the public sector pension plans through special payments.
Given the tight connection between the cost of public sector pension plans and the public treasury — and thus to taxpayers, one notable Canadian-made option for reform comes from Saskatchewan. There, the province stopped adding to pension liabilities and did so over three decades ago. The NDP’s 1970s-era reforms can serve as a useful model for long-term reform to any government, provincial or federal.
"Lightening of Citizenship and Its Implication for Social Policy: 'Social Security Lite' in the Making?"
'Citizenship' has frequently been used as a key concept in Migration Studies. It has also become commonplace to feature the concept in Welfare State Studies, especially in these ten years. Marshallian linear evolutionary view of citizenship is, however, of little help in the analysis of current social policy development in Europe any more. What we are witnessing in Europe is the transformation of the meaning of 'citizenship'.
In concrete, this paper builds on Christian Joppke's hypothesis on the 'lightening of citizenship'. My initial hunch is that lightening of citizenship would have a substantial impact on internal aspects of citizenship, namely what a state expects from its citizenry and what it guarantees in return. Taking recent social policy developments in Europe as an example, this paper contends that lightening of citizenship entails universalisation and lightening of social policy. In other words, the lightening of citizenship coincides with the lightening of social security.
The paper highlights the roles of the EU institutions in this transformation. Especially, this paper features the effect of the leading role of the judiciary in the EU and contends that the judiciary-induced policy making affects the content of the policy. Substantially, we argue that the universalisation and lightening of social security corresponds to functional requirement of the internal market in the first place, but it is also a plausible answer to the increasingly diversified and de-stylised life career of its citizenry. In this regard, 'lightening' should be conceptually separated from mere 'retrenchment' of welfare or 'neo-liberalization'. This direction has been augmented by the intervention of the ECJ, whose judgements has built on the Union Citizenship and enhanced individual social rights protection.
This trend may be called 'rights revolution' European style, but not without price. Featuring citizenship as a universal status, individual rights are protected, but collective ordering of social relations, which has been an important part of the social rights, would take a back seat. Therefore, the paper contends that a new perspective of "the individual versus the collective" is relevant in the analysis of EU social and employment policy.
"Housing in Retirement Across Countries"
Boston College Center for Retirement Research Working Paper No. 2013-18
MAKOTO NAKAJIMA, Federal Reserve Bank of Philadelphia
IRINA TELYUKOVA, University of California, San Diego (UCSD) - Department of Economics
The “retirement saving puzzle” is a phenomenon in which many households U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this project, we examine cross-country differences in the saving behavior of retirees in order to weigh in on the discussion of the puzzle. First, we find that countries in our sample vary noticeably in terms of the extent of the puzzle: one group of countries, in South and Central Europe, look like the United States, while in Northern Europe, retirees spend down their wealth much more rapidly. Second, it appears that the rate of dissaving in retirement is correlated with the extent of public coverage of healthcare and long-term care, and these differences in saving happen predominantly through dissaving of financial assets, while housing assets are less affected. In a quantitative experiment using a life-cycle model of saving in retirement, we measure the role of out-of-pocket medical spending risk in accounting for differences in observed saving patterns among retirees in the United States and Sweden, considering housing and financial assets separately. The model predicts that this risk accounts, on average across age, for one-half of the difference in median net worth between United States and Sweden, and for about 70 percent of the difference in median financial assets. The role of risk diminishes with age, and is seen primarily in financial asset saving, while housing assets do not appear to respond to spending risk, suggesting that housing is not a precautionary asset.

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