NICK DRAPER, CPB Netherlands Bureau of Economic Policy Analysis
ANDRÉ NIBBELINK, CPB Netherlands Bureau of Economic Policy Analysis
JOHANNES UHDE, University of Wuerzburg
This paper explores possible alternatives for the current Dutch first pillar pension scheme (AOW). It presents the welfare, labour market, saving and unintended bequest effects of a shift from a Beveridge towards a Bismarck system in which the pension rights depend on the labour market history. The paper focuses on the insurance with the AOW against both longevity and productivity risk. The main conclusion is that a shift of the first pillar pensions from a Beveridge towards a Bismarck system is not necessarily welfare improving from an ex-ante insurance perspective, i.e. before the veil of ignorance is lifted. Moreover, a means test of the first pillar against wealth income, which implies a lower AOW when an individual has wealth income and a lower pension premium for everyone, does not improve welfare.
J. C. HERBERT EMERY, University of Calgary - Economics
VALERIE FLEISCH, University of Calgary
LYNN MCINTYRE, University of Calgary
The federal Conservative government recently began phasing in a plan to raise the age of eligibility for Old Age Security from 65 to 67. But a more sensible move for improving the effectiveness of Canada’s social safety-net system may be to actually lower the age below 65 and rely strictly on an income test instead, regardless of age. The government could go a lot further toward the reduction of poverty in Canada by building on the success of its income supports for seniors, and making them available to poor Canadians of all ages.
Canada can boast of having one of the lowest rates for poverty among seniors in the world, largely due to its guaranteed income programs for those 65 years and older. When low-income Canadians turn 65 years old and leave behind low-paying, often unstable jobs, their poverty levels drop substantially. What a guaranteed income provides, that their vulnerable job situation did not, is a form of protection against budget shocks — a sudden volatility in income or expenses without the access to savings or credit to smooth things out until stability returns. A guaranteed income provides a kind of “disaster insurance” that can protect someone in a crisis situation from going without necessities such as food or even shelter. Statistics show that the rate of Canadians experiencing “food insecurity” — that is, lack of access to food because of financial constraints — is half that among Canadians aged 65 to 69 years than it is among those aged 60 to 64. Self-reported rates of physical and mental health improve markedly as well after low income Canadians move from low-wage, insecure employment to a guaranteed income at the age of 65.
That dramatic shift in physical and mental health indicates that expanding guaranteed income programs to younger Canadians is more than a simple cost calculation: there are potential savings to be found as poorer Canadians, given a guaranteed income, become healthier and therefore reduce the burden on the public health-care system. Canadian governments already spend billions of dollars on the downstream effects of poverty, but scant emphasis is put on programs targeting poverty’s roots.
There is no evidence, where smaller-scale experiments have been tried, to show that a guaranteed income program creates a serious problem with negative incentives and discourages people from working who otherwise might. But because this is a common worry with working-age guaranteed income eligibility, phasing in the program gradually, by lowering eligibility a few years at a time, will allow ongoing investigation and analysis of the effects, before the program is rolled out on a large scale. The tremendous impact that guaranteed incomes have had on reducing poverty and improving health among seniors is something for which Canadians can be rightly proud. So much so that it is incumbent upon us to investigate whether Canada could use the same policy tools to drastically reduce poverty and improve health among Canadians of all ages.
This paper provides new evidence of coordination of retirement by mature age couples in Australia. Two complementary estimation approaches are used to highlight the importance of taking the household decision-making context into account when modeling the retirement behaviour of partnered men and women. First, a single risk hazard model provides insights into the influences of a spouse’s characteristics on the retirement decision of the individual. Second, a competing-risks framework is used to examine the retirement behaviour of couples exiting from a situation in which both are in paid employment. There is strong evidence of coordination of retirement by mature age couples in Australia due to complementarities in leisure and, for women, because of caring responsibilities. In particular, the results suggest that women may delay their own retirement if their partner has a financial incentive to continue in the labour force; or retire early to care for a partner who is in poor health.
"How Much Would It Take? Achieving Retirement Income Equivalency between Final-Average-Pay Defined Benefit Plan Accruals and Voluntary Enrollment 401(k) Plans in the Private Sector"
EBRI Notes, Vol. 34, No. 12 (December 2013)
Previous EBRI research reported on a comparative analysis of future benefits from private-sector, voluntary enrollment (VE) 401(k) plans and stylized, final-average-pay defined benefit (DB) plans. This paper expands upon work previously published by computing for a number of simulated employee contingencies (such as job turnover) what level of final-average DB accrual would provide an equal amount of retirement income at age 65 as would be produced if the projected sum of voluntary enrollment 401(k) and IRA rollover balances were annuitized. In so doing, it provides a comparison in median outcomes for a variety of assumptions, both market returns and annuity purchase prices, and should provide a much-needed reference point for policy makers in evaluating these plan designs in view of both current and future workforce trends. Rather than trying to reflect the real-world variation in DB accruals, the baseline analysis used the median accrual rate in the sample (1.5 percent of final compensation per year of participation) as the stylized value for the baseline counterfactual simulations. EBRI’s modeling finds that the median accrual rates (mid-point, half above and half below) that final average DB pensions would need in order to provide retirement income equal to voluntary enrollment 401(k) plans would range from just under 1 percent to 3 percent of final compensation per year of participation, using baseline assumptions. These rates would go down if investment returns fall and annuity prices go up, to between 0.6-1.6 percent per year.
The PDF for the above title, published in the December 2013 issue of EBRI Notes, also contains the fulltext of another December 2013 EBRI Notes article abstracted on SSRN: “Views on Employment-Based Health Benefits: Findings from the 2013 Health and Voluntary Workplace Benefits Survey.”
ALEXANDER GELBER, National Bureau of Economic Research (NBER)
DAMON JONES, University of Chicago
DANIEL W. SACKS, University of Pennsylvania - The Wharton School
We study frictions in adjusting earnings to changes in the Social Security Annual Earnings Test (AET) using a panel of Social Security Administration microdata on one percent of the U.S. population from 1961 to 2006. Individuals continue to "bunch" at the convex kink the AET creates even when they are no longer subject to the AET, consistent with the existence of earnings adjustment frictions in the U.S. We develop a novel framework for estimating an earnings elasticity and an adjustment cost using information on the amount of bunching at kinks before and after policy changes in earnings incentives around the kinks. We apply this method in settings in which individuals face changes in the AET benefit reduction rate, and we estimate in a baseline case that the earnings elasticity with respect to the implicit net-of-tax share is 0.23, and the fixed cost of adjustment is $152.08.
"Seguridad Social Universal Centrada en el Ciudadano (Citizen-Centered Universal Social Security)"
Bienestar y Política Social 9 (1): 3-22, 2013
GABRIEL MARTINEZ, Instituto Tecnológico Autónomo de México (ITAM)
NELLY AGUILERA, Interamerican Conference for Social Security (CISS)
MARTHA MIRANDA-MUÑOZ, Interamerican Conference for Social Security (CISS)
The English version of this paper can be found at http://ssrn.com/abstract= 2358568.
This essay reviews the situation of social security in Mexico, as well as options for reform. A guideline is the concept of social protection floor defined by the International Labour Organization and the World Health Organization. More general issues are analyzed under the main headings of family, pension, health and employment programs, and financing issues are also considered. Establishing a framework of service to the citizen is seen as indispensable to deliver the benefits of universal social security.