scholarly journals Microsimulation of pension reforms: behavioural versus nonbehavioural approach

2009 ◽  
Vol 9 (4) ◽  
pp. 583-607 ◽  
Author(s):  
MARGHERITA BORELLA ◽  
FLAVIA CODA MOSCAROLA
Keyword(s):  
Financial Incentives ◽  
Substantial Reduction ◽  
The Self ◽  
Retirement Age ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Replacement Rate ◽  
Pension Reforms ◽  
Notional Defined Contribution ◽  
The Impact

AbstractWe analyse the impact of various pension regimes, as shaped by recent Italian reforms, on retirement age, adequacy issues, and redistribution. We add to the literature on microsimulation by accounting for individuals' reactions to financial incentives when deciding to retire. We find that shifting from a generous defined benefit (DB) system to an actuarially fair notional defined contribution (NDC) system induces individuals, particularly men, to postpone retirement. Voluntary postponement of retirement would grant employees a replacement rate comparable to that obtained in the pre-reform DB regime, while the self-employed experience a substantial reduction in their replacement rate.

scholarly journals Retirement Ages by Socio-Economic Class

Risks ◽  
2020 ◽  
Vol 8 (4) ◽  
pp. 102
Author(s):  
Séverine Arnold ◽  
Anca Jijiie
Keyword(s):  
Risk Aversion ◽  
Time Preference ◽  
Retirement Age ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Policy Makers ◽  
Economic Class ◽  
Notional Defined Contribution

We are interested in defining the optimal retirement age by socio-economic class, given a Defined Benefit and a Notional Defined Contribution scheme. We firstly implement a utilitarian framework. Depending on the risk aversion coefficients and individual time preference factors, the results differ significantly. Since this approach is individualistic, with no consensus in the existing literature on what values these parameters should take, it is not suitable to be used by policy makers. Therefore, we provide an alternative based on two accounts. We look for the retirement age allowing the accumulated value, at the last age with survivors, of the pensions received under each system, held in one account, to be close in value to the accumulated amount should the actuarially fair pension be paid, representing the second account. Our approach results in setting a lower retirement age for lower socio-economic classes and a higher retirement age for wealthier individuals.

scholarly journals Mortality by socio-economic class and its impact on the retirement schemes: how to render the systems fairer?

2021 ◽  
Author(s):  
Anca Jijiie ◽  
Jennifer Alonso-García ◽  
Séverine Arnold
Keyword(s):  
Social Economic ◽  
Mortality Rates ◽  
Oecd Countries ◽  
Retirement Age ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Economic Class ◽  
Notional Defined Contribution

AbstractMany OECD countries have addressed the issue of increased longevity by mainly increasing the retirement age. However, this kind of reforms may lead to substantial transfers from those with shorter lifespans to those that will live longer than the average, as they do not necessarily take into account the socio-economic differences in mortality. The contribution of our paper is therefore twofold. Firstly, we illustrate how both a Defined Benefit and a Notional Defined Contribution pay-as-you-go scheme can put the lower social economic classes at a disadvantage, when compared to the actuarially fair pensions. In contrast to that, higher classes experience a gain. This is due to the fact that mortality rates per socio-economic class are not considered by either scheme. Consequently, we propose a model that determines the parameters for each scheme and class which would render the pensions fairer even when no socio-economic mortality differences are considered.

scholarly journals The impact of notional defined contribution system (NDC) from the point of view of individual

2014 ◽  
pp. 96-105
Author(s):  
Milda Švedienė ◽  
Astrida Slavickienė
Keyword(s):  
Interest Rate ◽  
Pension System ◽  
Labour Force ◽  
Point Of View ◽  
Pension Benefit ◽  
Pension Scheme ◽  
Retirement Age ◽  
Defined Contribution ◽  
Notional Defined Contribution ◽  
The Impact

Retirement benefit plans are the relevant theme in the world and in Lithuania as well. The demographic challenges such as ageing and shrinking labour force cause the problem which usual PAYG system is not able to solve. Whereas this problem is very important in Lithuania simulation of notional defined contribution system is suggested. The influence of new pension system to individuals is analysed in this paper.  The analysis of theoretical works showed that NDC system is defined contribution (DC) system financed as in pay-as-you-go (PAYG) system. This pension scheme is different from others because of it accounting mechanism: contributions of individuals are accumulated on their individual accounts but whereas real capital is not accumulated the balance is notional. All accumulated sum is converted to pension benefit when individuals are at retirement age depending on cohort’s life expectancy. It is said that NDC pension system helps to solve problems such as sensitivity to changes in economic growth, decreasing volume of savings or create a better link between contributions and benefits.  Nevertheless it is recognized that benefit return in NDC pension system is less than in usual defined contribution system. The results of simulation have showed that notional defined contribution system in Lithuania would not be the way out from problems in pension system. The system would be balanced in 30-year period and indexation would be acceptable for individuals but from 2040 interest rate would be reduced by the relevant part of the balance ratio. Depending on the changes in interest rate from 2040 notional capital would be less than all sum of contribution paid and it would negatively impact individuals’ finances. It was found that the more years individuals spend in labour market the bigger capital they accumulate and the bigger benefit get when they are at retirement age. Nevertheless it was noticed that replacement rate would be approximately 25 percent and it would not be adequate for the required use of retirees.

The Long-Term Financial Sustainability of the Civil Service Pension Scheme in Malaysia

2019 ◽  
Vol 18 (1) ◽  
pp. 155-178
Author(s):  
Sheila Rose Darmaraj ◽  
Suresh Narayanan
Keyword(s):  
Civil Service ◽  
Pension Scheme ◽  
Retirement Age ◽  
Financial Sustainability ◽  
Defined Benefit ◽  
Contribution Rate ◽  
Replacement Rate ◽  
Deficit Model ◽  
Pension Payments

The civil service pension scheme (CSPS) in Malaysia is a defined benefit (DB), non-contributory system directly funded from the budget. An aging population, rising life expectancy, and ballooning pension payments underscore the need for reform. An annual pension deficit model was used to estimate the pension deficit over a period of 75 years under eight scenarios that compare the current scheme with changes in the pension deficit when three policy variables—retirement age, contribution rate, and replacement rate—are manipulated. We found the current scheme will not be financially sustainable. By increasing the retirement age, introducing employee contributions, and reducing the replacement rate, it is possible to delay the emergence of deficits and lengthen the period of sustainability of the scheme. However, a radical makeover is necessary to be fully sustainable and this might not be politically feasible.

Pension Reforms and Public Sector Turnover

2019 ◽  
Vol 30 (1) ◽  
pp. 96-112 ◽  
Author(s):  
Evgenia Gorina ◽  
Trang Hoang
Keyword(s):  
Public Sector ◽  
State Level ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Benefits ◽  
Employment Benefits ◽  
Pension Reforms ◽  
Defined Contribution Plans ◽  
Retirement Systems ◽  
State Pension

Abstract Over the past decade, many states have reformed their retirement systems by reducing benefit generosity, tightening retirement provisions, introducing non-defined-benefit (DB) plan options and even replacing DB plans with defined-contribution plans. Many of these reforms have affected post-employment benefits that public workers will receive when they retire. Have these reforms also affected the attractiveness of public sector employment? To answer this question, we use state-level data from 2002 to 2015 and examine the relationship between state pension reforms and public employee turnover following the reforms. We find that employee responsiveness to the reforms was tangible and that it differed by reform type and worker education. These results are important because the design of public retirement benefits will continue to influence the ability of the public sector to recruit and retain high-quality workforce.

scholarly journals Informality and the Challenge of Pension Adequacy

2019 ◽  
Vol 19 (149) ◽  
pp. 1
Author(s):  
Christoph Freudenberg ◽  
Frederik Toscani
Keyword(s):  
Pension System ◽  
Pension Reform ◽  
Positive Impact ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Real Rate ◽  
Labor Market Reform ◽  
The Impact ◽  
Term Labor ◽  
Pension Adequacy

Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions. In the DB pillar, the regressive minimum contribution period should be re-thought, while in the DC pillar a broadening of the contribution base and/or an increase in contribution rates would help increase replacement rates relative to the baseline forecast of 25-33 percent. A higher net real rate of return than assumed in the baseline would also have a significant positive impact. In the medium-term, labor market reform to tackle informality, and a broad pension reform to restructure the system and avoid competition between the DB and DC pillars should be a priority. Given low pension coverage, having a strong non-contributory pillar will remain important for the foreseeable future.

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.

Why are US men retiring later?

2018 ◽  
Vol 19 (3) ◽  
pp. 442-457
Author(s):  
Wenliang Hou ◽  
Alicia Munnell ◽  
Geoffrey Todd Sanzenbacher ◽  
Yinji Li
Keyword(s):  
Social Security ◽  
Structural Model ◽  
Retirement Age ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Original Cohort ◽  
The Past ◽  
Retirement Timing ◽  
Retirement Study

AbstractOver the past two decades, the share of individuals claiming Social Security at the Early Eligibility Age has dropped and the average retirement age has increased. At the same time, Social Security rules have changed substantially, employer-sponsored retirement plans have shifted from defined benefit (DB) to defined contribution (DC), health has improved, and mortality has decreased. In theory, all of these changes could lead to a trend toward later claiming. Disentangling the effect of any one change is difficult because they have been occurring simultaneously. This paper uses the Gustman and Steinmeier structural model of retirement timing to investigate which of these changes matter most by simulating their effects on the original cohort (1931–1941) of the Health and Retirement Study (HRS). The predicted behavior is then compared with the actual retirements of the Early Boomer cohort (1948–1953) to see how much of the later cohort's delayed claiming and retirement can be explained by these changes. The Early Boomer cohort was less likely to be fully retired than the HRS cohort at both age 62 (36.7% vs. 44.0%) and age 64 (49.5% vs. 53.9%). The model suggests that the shift from DB toward DC plans was the biggest contributor to these declines, followed by better health. Social Security rules and improvements in mortality played smaller roles.

The Role and Responsibilities of Actuaries in the Defined Contribution Environment in the United Kingdom

1999 ◽  
Vol 5 (4) ◽  
pp. 763-800
Author(s):  
M.A. Stocker ◽  
S.D. Dudley ◽  
G.E. Finlay ◽  
H.J. Fisher ◽  
O. C. Harvey Wood ◽  
...  
Keyword(s):  
United Kingdom ◽  
Public Interest ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Current Role ◽  
Roles And Responsibilities ◽  
The Public ◽  
The United Kingdom ◽  
The Impact

ABSTRACTThis paper takes an overview of the potential roles and responsibilities of pension scheme actuaries in the United Kingdom in relation to defined contribution (DC) schemes.First it summarises briefly the background to UK retirement provision and in particular the move to DC arrangements. The paper then compares and contrasts the pension scheme actuary's current role in both defined benefit (DB) and DC schemes. This is then developed to consider what further statutory roles there may be for actuaries in DC schemes.The paper challenges the profession to champion the public interest by seeking clarity and simplification, and finally considers the impact on actuarial employment.

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