Pension Reforms

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Baby boomers will have more Defined Contribution-style assets and will need to spread them out over their retirement. Annuities can insure both the investment and mortality risks so why aren’t they more popular in the US? more

When a country introduces a compulsory retirement savings scheme, ‘new’ saving might be at least partly at the expense of ‘existing’ saving. For Mexico, so it turns out. More rules seem needed. more

The UK is thinking about institutional support for the new “personal accounts” that start in 2011. For public credibility, it needs to be independent and use available expertise. Research offers some pointers for its development. more

Both Latin America and China are trying to change PAYG Defined Benefit pension systems to Defined Contribution, Tier 2 arrangements. Neither seems to be working well so what might the lessons be for both those countries and others? Don’t start from here seems one of them. more

Modern, socially conscious governments often need to know what to offer citizens in the way of material support when they can’t manage this themselves. In the UK, a “minimum income standard” is a new tool to show the cost of basic goods and services for different household types. more

Economic models can help us to understand the relative merits of different policy options. A 54 year global analysis is run forward to 2050 to see how returns to capital and wages might be affected by demographic change. However, it gets very complex, perhaps too complex. more

Americans are told they aren’t saving enough for retirement. Numbers on that are usually based on income replacement rates. A life-cycle model produces very different results – only 3.6% of households aren’t saving “optimally”. more

The IMF has reviewed the progress of pension reforms in Latin America. In many ways, they have not been as successful as had been hoped. Chile may be an exception but then again, may be not. more

The Trustees of the US Social Security system issue regular actuarial reports. The 2008 report shows that the Trust Fund will run out of money in 2041. To restore “solvency” contribution rates need to go up. Do they? more

Voters seem to prefer social security systems that are pay-related (less redistributive) over those that are flat-rate (more redistributive). Linking benefits to contributions seems more acceptable to the “median voter”. But what if there are no contributions? more

The words ‘pension’ and ‘crisis’ seem inexorably associated with ‘aging populations’ but politicians haven’t really done much to address the issues. We need to re-think the social contract. Consensus should be the foundation and we may need a new framework for the debate. more

Deciding to have a pension in a poor country is one thing; delivering it is another. Nepal started a very modest universal pension in 1995-96. Despite its universality, actual coverage is only about 77% but that varies somewhat by regions. more

Protecting US Social Security incomes against inflation can be done in several possible ways. Understanding the bases reveals the difficulties so leaving things as they stand seems the preferred option. That doesn’t make it the best option. more

Past Italian evidence had apparently failed to connect respondents’ ages with reports of the impact of financial incentives on retirement decisions. Past studies were apparently flawed – older Italians seemingly behave in expected ways. more

The World Bank reviews the Latin American experience of compulsory Tier 2 retirement saving schemes. As a principal proponent of the now “five pillar” pensions solution, including compulsion, it seems a pity the World Bank can’t find more encouraging evidence. more

The proportions of older people who continue working beyond the State Pension Age are growing in many developed countries. Often, it’s not about the money. US data also indicate that work improves overall well-being. That’s good for everyone, including the economy. more

Commentators in New Zealand worry about the amount of housing in household balance sheets. Data from a new longitudinal study suggests that policymakers need not be so concerned. more

Actuarial adjustments to the US Social Security pension for early and later payment are supposed to be financially neutral. Seemingly, they do not allow for individuals’ preferences so people work less than they might have and tend not to “partially retire”. more

The US has seen a large shift of retirement saving provision from Defined Benefit to Defined Contribution over the last 25 years. Projections show there will be very large amounts in DC plans by 2040. more

Everyone who saves for retirement through a financial product or by direct investment in shares, bonds or bank deposits participates in international money markets. The number of savers and the amount of money involved have mushroomed. That seemingly contributes to volatility. more

Tax incentives encourage people to save for retirement, don’t they? They may not actually do that but that’s not their only problem. Most tax benefits go to richer savers, rewarding them for what they may have done anyway. What should the US do about that? more

In the US, Tier 3 401(k) schemes (and their equivalents) usually offer lots of investment choices - too many say some. Amongst all those choices, schemes seem typically to offer 'efficient' options when compared with conventional performance benchmark indices. more

In the US, the proportion of retired home-owners and the proportion of housing equity in overall wealth have been relatively static over 20-30 years. Housing equity can be released post retirement but retirement-specific wealth is likely to become more important over coming decades. more

Southern Africa has a cluster of three countries with non-contributory pensions. The historical reasons for their development vary but the reasons for their continued existence now seem similar. more

Social security pensions apparently have adverse effects on net marriage rates, total fertility rates, private savings, some schooling attainment measures and per capital growth. So says a model applied to 32 year, 57 country data. more

Surprisingly little attention is paid to the small number of ‘universal, non-means-tested’ pension systems in the world, despite their attractive features. The pensions world seems focussed on forcing citizens to save. Addressing old-age poverty might be more useful, even for poor countries (but not just them). more

Shareholders (and others) need to know the expected cost of Defined Benefit pensions that managers promise former employees. Past rules had unintended consequences. Is the proposed IAS19 any better? Probably not. more

The trustees of UK pension schemes pay high fees to fund managers to, among other things, beat the market. By hiring managers to pick which markets to be in, they want higher returns from the professionals. Do they get better returns? Perhaps - or perhaps not. more

Private medical insurance for the US retired costs a lot. Without employer-paid cover, retirees don’t have many choices. If they save for the post-retirement costs, the amount looks discouraging. Cutting cover or relying on the state seem the only other options. more

The macro-economic numbers appear to show New Zealand’s household saving has plummeted since 2000. Are the numbers wrong or are households getting poorer at an alarming rate? Statistics may not give the full picture – missing information doesn’t help. more

Longitudinal studies track the behaviour of individuals over periods of time. They show how people respond to change and how they might integrate private behaviour with public policy. It’s comforting to see that US citizens seem to behave as the supporters of the “rational expectations” hypothesis might have guessed. more

Universal pensions are a good idea – for a country. But what about for the world? Because we live in a world where business is “globalised”, what’s wrong with adopting the same approach for a “worldwide old-age pension”? Quite a lot actually, especially if someone else has to pay for it. more

Governments, insurance companies and Defined Benefit private plans all provide annuities that depend on one or, sometimes, two lives. US providers are probably underestimating the mortality risk. And then there is the investment risk. more

In theory, the equity in the family home offers financial security that can be converted to cash if needed. In the US, it seems that older workers will not want to use the equity for living costs but rather as insurance or for a bequest. more

The US faces a number of alternatives when it addresses Social Security reform. The right questions need to be asked and all the implications of change considered (including cost). Some suggested solutions won’t change much and may be harmful. more

The casual observer might think Mexico was switching from a PAYG pension to a prefunded replacement. Not so. In fact, Mexico now has an elaborate money-go-round that means tomorrow’s pensioners are still dependent on tomorrow’s taxpayers. more

An international agency calls for a universal “social pension” – a non-contributory, universal Tier 1 pension from age 60. In poorer countries, that helps the old but also helps society, governance and need not cost a lot. more

In a country as large as China, pension experiments can be local - perhaps need to be local. Baoji City is trying a contributory, Tier 1 pension that, for the currently old, depends on the children's decision to contribute. Poverty alleviation is the scheme's modest target. more

Individuals need information to make 'sensible' decisions about retirement saving. Global, generic information (including 'financial literacy') seems less useful than help from specialist advisers. This has implications for disclosure requirements (and public information campaigns). more

Most retired Canadians seem happier in retirement than before and more (or at least as) satisfied with their financial position. Life satisfaction tended to fall with age but satisfaction with finances rose (compared with pre-retirement). There is no real substitute for asking. more

Surveys of US employers seem to show a mismatch – employers think that older employees will need to work longer (because they can’t afford to retire) but the employers seem reluctant to keep older workers on. more

Australia has again looked at long-term fiscal issues associated with its ageing population. Things look a little better in 2007 than they did in 2002. more

In 2007, the Irish government issued a major report (a “Green Paper”) that looked at most aspects of pension provision. Major change was seemingly unlikely, only minor but detailed tweaks. Not good enough, according to some academics. Root and branch change is needed. more

Anyone who has to understand the complex UK pension system (public and private) needs this Pensions Primer. The system is already complicated and over the next few years will become much more so. more

The Indian government has nearly doubled the number of Tier 1 social pensions it provides to the elderly poor. Paradoxically, this might increase the incidence of elderly poverty. more

Not many countries have a universal (Tier 1) pension. Mauritius (pop. 1.3 m; GDP per capita now $US5,500) started one in 1950 almost by accident when it was a lot poorer. It experimented twice with income tests but now everyone over 60 gets a pension. more

Very poor countries face few choices when it comes to pensions for the elderly. A universal, Tier 1 pension is the most effective way of delivering economic assistance to the old. The experience of Lesotho shows that Tier 1 can have social advantages as well. more

South Africa proposes to replace its existing pension arrangements with a universal Tier 1 pension and a dual, compulsory Tier 2 that is divided between a DB, PAYG arrangement and a DC, pre-funded scheme. The World Bank’s thinking has had a significant influence. more

Much statistical information about Japanese pension plans, the elderly and other data that affect economic trends and analysis is drawn together in a single web site. more