Pension Reforms

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Financial modelling software can help individuals plan for their retirement income needs. Web-based versions in the US are greatly simplified (perhaps even simplistic) and will probably improve. They need to if they are to allow for expected and also extreme events like the global economic crisis. more

US individuals are very ‘mobile’ with respect to their incomes. Over the 10 years to 2005, about half from the bottom income quintile moved to a higher one: broadly unchanged over the preceding 10 years. Care is needed when income analyses are made. more

Well-run pension schemes require good record keeping. That should be particularly the case with government-run pension schemes: not so recently in Japan as the discovery of 50 million “floating” pension records attests. more

In 2004, the Australian government introduced new rules designed to improve the governance of superannuation schemes, including the compulsory Tier 2 schemes. Who were the winners? Financial service providers. And the likely losers? Members. more

A new “Global Pension Index” grades different countries’ retirement income systems – public and private – from “poor” to “first class and robust”. Eleven countries are covered in the first pass. It is unclear what might be done with the results; perhaps ‘Could do better if tried’? more

Australia’s retirement income system will produce post-retirement replacement rates of 80% plus for home-owning, low income earners. Middle and high earners will be less well off as will those who do not own their homes. Time for them to do more. Really? more

In the US, reduced Defined Benefit coverage will affect the make-up of the baby boomers’ retirement incomes. The highest earners will see the biggest falls, particularly younger boomers. From a public policy perspective, that’s not necessarily a bad thing. more

When state pensions are based on retirees’ work/income experiences, as is the case in the US, we must expect the value of those pensions to vary by working life differences. So it turns out. Whether that should be so is another issue. more

The EU fund management industry needs to step up – better governance and fee disclosure are essential. Better regulation would help, recognising the special place that long term savings vehicles should apparently have. Everyone needs more financial education and better advice. more

In the UK, housing is 40% of households' wealth but 20% of those age 50+ have no housing assets. Some housing wealth might be accessed to help with retirement income but ‘equity release’ products have an image problem. DIY equity release might be more likely. more

‘Equity release’ financial products let the retiree-owners of assets draw down on them without having to sell. An Australian government report looks at the main types and issues some warnings. Bad decisions can be permanent and financially disastrous. more

The workforce is ageing in different ways. A New Zealand study shows the age and gender shapes of 37 occupations. Women tend to dominate the professions at younger (but not older) ages. Some occupations are dominated by younger workers. Employers will need to be smarter. more

A 2007 survey of older New Zealanders (aged 65-84) showed that 88% feel satisfied with their lives. Health, income, partner status and home ownership seem the top four indicators. Much is as might be expected. more

When countries get richer, fertility rates generally decline. But when countries get really rich, fertility rates seem mostly to rise off their lows. So, are predictions of demographic doom alarmist? more

The OECD has looked at countries’ complex rules governing funding requirements in Defined Benefit schemes. There is no easy overall solution and so perhaps it’s all too hard. Anyway, employers probably need to stop the DB schemes they have. more

Europe has a big problem – too many old people live in poverty because their countries seem to be failing them. So, should Europe solve the problem rather than leave it to each country? There are some advantages but also quite a few problems; probably too many problems. more

Changing the State Pension Age should provoke a review of other age-based aspects of social welfare. In the US, Social Security pensions can be claimed from age 62. As the State Pension Age rises to 67, should age 62 become 64? The answer isn’t simple. more

The so-called ‘retirement consumption puzzle’ (apparently precipitous declines in consumption after retirement) turns out not to be a puzzle. Looking at what households actually do resolves most of the issues. The bottom quintile is a potential worry. more

The UK Pensions Regulator has surveyed pension scheme governance issues for the fourth consecutive year. Schemes themselves report that they are mostly in good order. It might be nice to find out whether that is in fact so. more

In Chile, the ‘more work-friendly’ compulsory Tier 2 scheme seems to have reversed the decline in labour force participation rates at older ages. That is apparently because a compulsory scheme rewards work and is actuarially fairer. Perhaps, but participation may well have increased anyway. more

Defined Benefit schemes in the Netherlands have pre-funding ratios that reflect the financial strength of the sponsoring employers. A higher level of risk in the employer’s balance sheet tends to mean higher risk (lower coverage and/or more equities) in the scheme. more

When employers want out of Defined Benefit schemes, they may want to get rid of past, as well as future promises. So-called “solvent buyouts” are more common in the UK than the US. So what does the UK experience look like? So far, so good. more

Annuities should be a popular investment choice for retirees because they can reduce uncertainty. But, in a voluntary environment, they aren’t. Perhaps that’s because of the way potential purchasers are asked. Perhaps not. more

US baby boomers have had a big impact on the housing market. Once they start retiring and downsizing, there might be more houses for sale than buyers. That will affect different areas differently, depending on the number of local baby boomers. more

The way households own assets, like shares and housing is unsurprisingly related to the way they are treated for tax. High marginal rates seem to shift assets from direct to indirect ownership. Inflation seems to decrease direct ownership where marginal rates are high and gains are taxed. more

Compulsory Tier 2 schemes (like Australia’s) need thickets of regulations to make everyone do as they are told. Another thicket now seems needed to protect savers from their apparent lack of interest in outcomes. Do employers need to be forced to make choices for them? And so it goes on.... more

Setting ‘ideal’ target retirement incomes at a national level is a difficult business. The major 2012 UK changes make this is a topic of some interest. Top down approaches to this issue are likely to be less informative than actually asking. The numbers do not look great in the UK on this basis. more

The Danish pension system is complicated. The ATP is a small part by benefits delivered at retirement but makes up for that by its complexity. The system as a whole seems doubtful about the ATP’s role, as well it might. more

A World Economic Forum report tries to widen the debate on the challenges of ageing populations. There is much new language, some ideas for debate but much that is familiar. It thinks universal pensions are good but only for “low income” countries. more

Most studies attribute non-participation in Tier 2 schemes to labour market characteristics (informal/part-time employment) or employers’ decisions. But workers might choose not to join and take jobs where ‘mandatory’ contributions are easily evaded. “Compulsory” may in fact mean “if I want to”. more

A New Zealand government report looks at poverty measures based on household incomes both before and after housing costs. Despite having little income other than the Tier 1 pension, the old are faring relatively better than other groups. more

The World Bank takes a third major look at national pension design issues. It’s a step in the right direction because its 1994 recommendations seem not to be working in countries that have followed the formula. “Social pensions” might be the answer but more research is needed. more

A financial services provider has looked at New Zealand’s environment and made a number of recommendations – Tier 1 will be unaffordable so must be reduced; improve tax breaks for saving; make annuities affordable; improve home equity release. The trouble is with the evidence. more

Public pension schemes have tended to produce poor investment returns. A World Bank 2008 review of four countries’ ‘new’ public schemes details some lessons for other countries that want to do a better job. more

Europe’s accountancy standard setters don’t like the IASB’s proposals for pension reporting. Among other things, the IASB thinks the employer’s financial accounts should try to guess whether the employer might be able to afford future contributions. Europe demurs. more

There is no shortage of cheerleaders for Australia’s compulsory Tier 2 retirement saving scheme. The global economic crisis seems not to have weakened the case for compulsion but it would be nice if that conclusion were based on sound data and solid logic. Not so here. more

Employees in the US seem irrational when contemplating 401(k) Tier 3 saving schemes. They do not seem to do what is clearly in their best interests. There are many reasons for this but financial literacy and trust (or a lack of those) seem important. more

In 1998, Taiwanese employees of listed employers had about half their portfolios in their employer’s shares. A 2007 report questions the investment rationale of that exposure and offers potential lessons for advocates of privatising social security arrangements. more

In 2008, US 401(k) balances fell by an average 24.3%. Average balances increased over the five years to 2008 by 7.2% a year from both returns and contributions. The difference between the median ($US12,655) and the average ($US45,519) shows a skewed distribution. more

The US Social Security Administration collects information about the aged (65+). The latest (2006 data) looks at all types of income. Median real income has risen over the years – marital status and age are significant qualifiers. Poverty levels have grown slightly in five years. more

A 2001 report looks at the impact of Australia’s compulsory Tier 2 retirement savings scheme on women. The results are predictable – lower pay and interrupted working lives mean lower expected private provision; also greater reliance on the income/asset-tested Tier 1 pension. more

Defined Benefit, Tier 3 schemes in the US were targeted in 2006 by new legislation that aimed to protect members and provide more transparent reporting. It seems the new law is the final straw that signals the demise of DB schemes. Not necessarily a bad thing. more

The UK’s new Personal Accounts will have a big impact on workplace retirement saving arrangements. The numbers of members will increase but, over time, total contributions could actually come down. That depends on how employers react. more

Taxes are usually a ‘this year’ calculation; that’s how we pay the state. Pensions are rather different – age, employment history – sometimes residence, contributions all matter when the state pays us. What implications does this dichotomy have for the tax treatment of pension savings? more

The European Commission reports on the economic impact of ageing populations over the next 50 years – low birth rates, longer lives mean higher pension costs. There could be another 59 million immigrants but the median age will still increase from 40 to 48. The news is not new; the recommendations unsurprising. more

Annuities help retirees to reliably run down savings with some confidence that income will continue until death. But in the US they aren’t very popular. Perhaps it might help if 401(k) retirees were forced into a partial annuity. Perhaps not. more

In Vietnam, poverty levels among the old are similar to the population as a whole – about one in five. Having an old person in the household is less significant than being in an ethnic minority or having children. Public transfers go disproportionately to the ‘unpoor’. more

Should regulators limit the amount pension schemes invest in hedge funds? First they need to find out how much money is in hedge funds and that’s not easy. Whether pension schemes should have any money in hedge funds is another issue. more

Half of US workers seemingly aren’t saving for retirement so the government must intervene. Lessons can be learned from other countries. There has to be a “low cost system” and workers must start saving as soon as they start working. The evidence for intervening seems sparse. more