scholarly journals The Role of Pension Policies in Preventing Old-Age Exclusion

2021 ◽  
pp. 373-383
Author(s):  
Jim Ogg
Keyword(s):  
Financial Stability ◽  
Later Life ◽  
Financial Risks ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Political Systems ◽  
Pension Income ◽  
Social Risks ◽  
Pension Benefits ◽  
Defined Benefit Pensions

AbstractAccess to an adequate pension is fundamental to preventing exclusion. As populations age, modern economies have put into place pension reforms to safeguard financial stability. In Europe, raising the age of eligibility for pensions and increasing the length of time necessary in a working career to access a pension are among the main policy measures that are being adopted. In addition, pensions and life expectancy are increasingly linked mainly in the form of the replacement of defined benefit pensions, where financial risks were shared collectively and produced stable pension benefits, by defined contribution pensions which depend on the capacity of individuals to save and individualise the risk of investments in diverse pension schemes. This chapter presents the main mechanisms of reforms to pension systems and addresses the opportunities and constraints for reducing exclusion in later life. It focuses on policies that aim to safeguard adequate levels of pension income for individuals who are unable to extend their working life; policies that aim to reduce gender pay gaps and, in turn, gender pension gaps; reforms to survivor pensions; and the provision of pension safety nets for individuals who have not built up enough contributions to ensure an adequate income. These policies are examined in the context of new social risks which result from shifting political systems, rapid technological change, and economic uncertainties.

scholarly journals Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support

2013 ◽  
Vol 13 (1) ◽  
pp. 1-26 ◽  
Author(s):  
ALAN L. GUSTMAN ◽  
THOMAS L. STEINMEIER ◽  
NAHID TABATABAI
Keyword(s):  
Social Security ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Bottom Line ◽  
Pension Income ◽  
Before And After ◽  
Social Security Wealth ◽  
Pension Benefits ◽  
Pension Wealth

AbstractA review of the literature suggests that when pension values are measured by the wealth equivalent of promised defined benefit pension benefits and defined contribution balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study for respondents in their early fifties suggest that pension wealth is about 82% as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65–69, pension incomes are about 58% as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these differences include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth ‘disappears’ at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

scholarly journals Addressing Longevity Risk: How Best to Annuitize Defined Contribution Assets?

2020 ◽  
Vol 4 (Supplement_1) ◽  
pp. 686-686
Author(s):  
Alicia Munnell ◽  
Gal Wettstein ◽  
Wenliang Hou
Keyword(s):  
Social Security ◽  
Longevity Risk ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Economics Of Aging ◽  
Distribution Rules ◽  
Lifetime Income ◽  
The Social ◽  
Defined Benefit Pensions ◽  
Deferred Annuity

Abstract Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

scholarly journals Closing the gender gap in pensions: A microsimulation analysis of the Norwegian NDC pension system

2018 ◽  
Vol 29 (1) ◽  
pp. 130-143 ◽  
Author(s):  
Elin Halvorsen ◽  
Axel West Pedersen
Keyword(s):  
Gender Gap ◽  
Economies Of Scale ◽  
Pension System ◽  
Personal Income ◽  
Defined Contribution ◽  
Pension Income ◽  
System A ◽  
Actuarial Fairness ◽  
Annual Earnings ◽  
Pension Benefits

In this article, we use an advanced microsimulation model to study the distributional effects of the reformed Norwegian pension system with a particular focus on gender equality. The reformed Norwegian system is based on the notional defined contribution (NDC)-formula with fixed contribution/accrual rates over the active life-phase and with accumulated pension wealth being transformed into an annuity upon retirement. A number of redistributive components are built into the system: a unisex annuity divisor, a ceiling on annual earnings, generous child credits, a possibility for widows/widowers to inherit pension rights from a deceased spouse, a targeted guarantee pensions with higher benefit rates to single pensioners compared to married/cohabitating pensioners, and finally a tax system that is particularly progressive in its treatment of pensioners and pension income. Taking complete actuarial fairness as the point of departure, we conduct a stepwise analysis to investigate how these different components of the National Insurance pension system impact on the gender gap in pensions and on general (Gini) inequality in the distribution of pension income within a cohort of pensioners. Our analysis concentrates on one birth cohort – individuals born in 1963 – and we study three different outcomes: the distribution of annual pensions early in retirement (at age 70), the distribution of the total sum of pension benefits received over retirement, and the distribution of the average annual pension benefits received over the retirement phase. In addition, we look at three alternative income concepts. These are personal income, equivalised household income, and finally an original income concept developed for this study: personal income adjusted for the economies of scale enjoyed by couple households.

Individual Biases in Retirement Planning and Wealth Management

2017 ◽  
Author(s):  
James E. Brewer ◽  
Charles H. Self
Keyword(s):  
Retirement Planning ◽  
Developed Countries ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Market Returns ◽  
Wealth Transfer ◽  
Investor Returns ◽  
Certified Financial Planner ◽  
And Behavior ◽  
Defined Benefit Pensions

Around the globe, the gradual move from defined benefit pensions to defined contribution pensions has increased the need for individual retirement planning. Examples of this include U.S. savings rates at historic lows, poor retirement prospects for citizens in developed countries, and the disparaging gap between investor returns and market returns. Research indicates that individuals working with a financial advisor generally receive better results than those who do not. Working with a Certified Financial Planner (CFP) gives an added level of security because a CFP takes an oath to keep the client’s interests ahead of his or her own. This chapter puts describes giving nudges to help individuals close the savings, investing, and behavior gaps that will improve their total wealth and wealth-transfer picture.

scholarly journals The transition to NDC in Italy: assessing distributive and financial effects

2021 ◽  
pp. 1-16
Author(s):  
Carlo Mazzaferro
Keyword(s):  
Net Present Value ◽  
Pension System ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Ratio Distribution ◽  
Actuarial Fairness ◽  
Notional Defined Contribution ◽  
High Level ◽  
Pension Benefits

Abstract Moving from a Defined Benefit (DB) to a Notional Defined Contribution (NDC) pension formula creates significant re-distributive effects. We estimate the amount and the intensity of these effects in the case of the Italian transition to NDC, which began in 1995. Based on administrative data of the main Italian pension scheme (FPLD), we study the evolution of yearly inequality within old-age pension benefits. Furthermore, we study the adequacy and the actuarial fairness of the pension system, by estimating the replacement rates and the Net Present Value Ratio distribution for workers who retired in the period 1996–2019. Our results show that the very generous interpretation of acquired rights determined by the 1995 reform has contributed to maintaining a high level of adequacy and a significant level of intergenerational imbalance. The financial costs of this imbalance are estimated and its extent is significant.

A Factor- and Goal-Driven Model for Defined Benefit Pensions: Setting Realistic Benefits

2019 ◽  
Keyword(s):  
Asset Allocation ◽  
Target Population ◽  
Cash Flows ◽  
Pension Plans ◽  
Critical Element ◽  
Defined Benefit ◽  
Agent Based ◽  
Pension Benefits ◽  
Traditional Approaches ◽  
Defined Benefit Pensions

A factor and goal-driven framework for assessing asset allocation and contribution decisions within defined-benefit pension plans is developed in this article. A critical element is setting future benefits with reference to the ability of the pension sponsors to support liabilities under reasonable investment expectations. The approach suggested by the authors combines a micro study of a representative cohort of individuals with an aggregation across a target population to estimate consistency between the micro and macro environments. A stochastic inflation risk factor affects both contribution and spending cash flows. This agent-based model suggested by the authors provides a more realistic framework than traditional approaches for setting pension benefits.

scholarly journals Cash balance pension plan conversions and the new economy

2004 ◽  
Vol 3 (3) ◽  
pp. 297-314 ◽  
Author(s):  
JULIA LYNN CORONADO ◽  
PHILIP C. COPELAND
Keyword(s):  
Labor Markets ◽  
New Economy ◽  
Pension Plan ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Cash Balance ◽  
Defined Contribution Plans ◽  
Defined Benefit Pension Plan ◽  
Pension Liabilities ◽  
Defined Benefit Pensions

Many firms that sponsor traditional defined benefit pensions have converted these plans to cash balance plans in the last en years. Cash balance plans in the last ten years combine features of defined benefit and defined contribution plans, and yet their introduction has proven considerably more controversial than has the increasing popularity of defined contribution plans. The goal of this study is to estimate a hierarchy of the influences on the decision of a firm to convert its traditional defined benefit pension plan to a cash balance plan. Our results indicate that cash balance conversions have been undertaken in competitive industries with tight labor markets and thus can be viewed at least in part as a response to better compensate a more mobile labor force. Indeed, many firms appear to increase their pension liabilities through such conversions.

scholarly journals Designing successful post-retirement solutions by blending growth, income and protection

2017 ◽  
Vol 22 (1) ◽  
pp. 177-206
Author(s):  
L.-A. Morgan ◽  
S. A. Lothian
Keyword(s):  
Later Life ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Key Factors ◽  
Retirement Accounts ◽  
Plan Member ◽  
Solution Design ◽  
Retirement Systems ◽  
The Individual ◽  
Retirement Investment

AbstractThe move from defined benefit to defined contribution (DC) has transferred the longevity and investment risks from the plan sponsor to the individual plan member. Without the actuarial cross-subsidies implied by pooling these risks, the danger of outliving one’s savings is significant. Much attention has been focussed on pre-retirement investment design but less on post-retirement. In most countries, the post-retirement systems in place are insufficient to solve this challenge for small asset sizes or small proportions of individuals’ retirement accounts. However, a number of DC markets are mature, such as Australia and Chile, and the principles of a solution that works for all must be identified. This paper researches a number of post-retirement systems around the world and identifies ten key factors that contribute to post-retirement solution design. These factors can result in an inconsistency between countries regarding the most appropriate post-retirement solution. Additionally, a disconnect is apparent between what retirees need and want in post-retirement. Successful post-retirement solutions will inevitably blend investment and insurance components in a balanced manner. With lengthening life expectancies, research supports strategies that blend a growth and income account-based approach for the first 15–20 years after retirement with longevity protection in later life.

Pension reform in france as a balance between adequacy and stability

2021 ◽  
Vol 72 (5) ◽  
pp. 95-102
Author(s):  
N. Zelenko ◽  
V. Zelenko
Keyword(s):  
Life Expectancy ◽  
Financial Stability ◽  
Pension System ◽  
Pension Scheme ◽  
Occupational Pension ◽  
Defined Benefit ◽  
Member States ◽  
Eu Member States ◽  
The Government ◽  
Pension Benefits

In this paper the authors analyze the main aspects and problems of reforming the French pension system. Most EU member states have been forced to review their system due to the coronavirus crisis, at least to make temporary adjustments. Given European aging population, declining birth rates and increased life expectancy, the associated increase in the age dependency ratio is creating tensions for underfunded defined benefit pension systems. This implicit pension debt has important macroeconomic implications. In France, the structure of the pension system provides for the existence of solidarity component, occupational pension schemes, as well as personal (which are not popular in this country). Sometimes there are significant differences in pension benefits between public and private sector workers with the same earnings, although this difference is much lower than in many other EU member states. Starting from July 1, 2017, no new pension reforms have been implemented in France, as the project proposed by the government and President Macron has received significant opposition from both trade unions and a large part of the population, as the creation of the so-called “Universal pension scheme” provides significant reduction in the rights of future retirees. In general, the choice of restrictive rules that reflect trends in wages, employment and life expectancy is critical for the proper updated system management. Preservation of the French pension system in the near future provides the increase in retirement age or extension of insurance to receive full pension benefits. The results of scientific research indicate the need to apply the adjusted strategy for further reforms, compared to their original versions. The reform proposed by the government and the president is aimed mostly at achieving long-term financial stability of the pension system. As for the adequacy of pension benefits, for some categories of citizens it can be decreased. Therefore, the reform envisages new configurations between the financial stability of the pension system along with ensuring the adequacy of the pension benefits amount.

Financial Risks of the Bank: Assessment and Mechanism of Neutralization

2020 ◽  
Vol 22 (1) ◽  
pp. 6-12
Author(s):  
Nelia Volkova ◽  
◽  
Alina Mukhina ◽  
Keyword(s):  
Risk Assessment ◽  
Financial Stability ◽  
Financial Risk ◽  
Stable Operation ◽  
Financial Risks ◽  
Negative Consequences ◽  
Conceptual Approach ◽  
Relevant Today ◽  
Banking Institution ◽  
The Impact

Abstract. Introduction. The issue of financial risk management of commercial banks is quite relevant today, because the activity of banks is the most risky of all. The presence of risks in banking can lead to unexpected losses, namely the loss of own resources. That’s why for the stable operation of the bank without loss the priority is to assess the financial risks, which is the basis for their further neutralization. Purpose. The purpose of the article is to develop conceptual provisions for assessment financial risks and justifying the need to neutralize them. Results. The article analyzes the impact of risks on the financial stability of a banking institution. The main methods of bank risk assessment are considered. All these include the statistical method, the analytical method, the expert method, the analogue method and the combined method. The necessity of neutralization of financial risks in order to avoid negative consequences is substantiated. Also the methods of bank risks neutralization are considered. It should be noted that these methods of neutralization can not only be used, but also supplement the list with new methods must be done, which in the future will protect the bank from the influence of undesirable factors. A conceptual approach to the assessment and neutralization of financial risks is proposed. This conceptual approach aims to ensure effective assessment of the level of risk with their subsequent neutralization Conclusions. Use of a conceptual approach will allow an effective risk assessment and decision-making to avoid or accept risk. Thanks to using this approach, the banking institution will be able to react swiftly to the presence of financial risks and to prevent the occurrence of negative consequences, which may lead to a violation of the financial stability of the bank.

Sign in / Sign up

Export Citation Format

Share Document