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.

How much do respondents in the health and retirement study know about their contributions to tax-deferred contribution plans? A cross-cohort comparison

2014 ◽  
Vol 14 (3) ◽  
pp. 203-239 ◽  
Author(s):  
IRENA DUSHI ◽  
MARJORIE HONIG
Keyword(s):  
Social Security ◽  
Pension Plans ◽  
Absolute Difference ◽  
Health And Retirement Study ◽  
Defined Benefit ◽  
Defined Contribution ◽  
The Mean ◽  
Wage Earners ◽  
Survey Responses ◽  
Retirement Study

AbstractWe use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contributions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study (HRS) correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use three samples representing different cohorts in three different periods: the original HRS cohort interviewed in 1992 at ages 51–56, the War Babies cohort interviewed in 1998 at ages 51–56, and the Early Baby Boomer cohort interviewed in 2004 at the same ages. Our findings indicate that while respondents interviewed in 1998 and 2004 were more likely to correctly report whether they were included in defined contribution plans, they were no more accurate when reporting whether they had contributed to their plans than respondents interviewed in 1992. Contributors in the three cohorts, moreover, overstated their annual contributions and thus would be likely to realize lower than expected account balances at retirement. The magnitude of this error is not negligible. In all three cohorts, the mean reporting error (the absolute difference between respondent-reported and Social Security earnings record contributions) was approximately 1.5 times larger than the mean contribution in the W-2 earnings record.

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.

Transitions from career employment among public- and private-sector workers

2019 ◽  
Vol 18 (04) ◽  
pp. 529-548 ◽  
Author(s):  
Joseph F. Quinn ◽  
Kevin E. Cahill ◽  
Michael D. Giandrea
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Pension Plans ◽  
Full Time ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private And Public ◽  
Public And Private Sector ◽  
Career Employment ◽  
Public Sector Workers

AbstractDo the retirement patterns of public-sector workers differ from those in the private sector? The latter typically face a retirement landscape with exposure to market uncertainties through defined-contribution pension plans and private saving. Public-sector workers, in contrast, are often covered by defined-benefit pension plans that encourage retirement at relatively young ages and offer financial security at older ages. We examine how private- and public-sector workers transition from full-time career employment, with a focus on the importance of gradual retirement. To our surprise, we find that the prevalence of continued work after career employment, predominantly on bridge jobs with new employers, is very similar in the two sectors, a result with important implications in a rapidly aging society.

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.

The portfolio effect of pension reforms: evidence from Italy

2010 ◽  
Vol 10 (1) ◽  
pp. 75-97 ◽  
Author(s):  
RENATA BOTTAZZI ◽  
TULLIO JAPPELLI ◽  
MARIO PADULA
Keyword(s):  
Real Estate ◽  
Social Security ◽  
Household Income ◽  
Pension Reforms ◽  
Italian Survey ◽  
Social Security Wealth ◽  
Portfolio Effect ◽  
Pension Benefits ◽  
Social Security Benefits

AbstractWe estimate the portfolio effect of changes in social security wealth exploiting a decade of Italian pension reforms. The Italian Survey of Household Income and Wealth records detailed portfolio data and elicits expectations of retirement outcomes, thus allowing us to measure expected social security wealth and assess to what extent Italian households perceive the innovations brought about by the reforms. We find that households have responded to cuts in pension benefits mostly by increasing real estate wealth, and that this response is stronger among households able more accurately to estimate future social security benefits. We also compute that for the average household consumable wealth increases by 40 percent of the reduction in social security wealth.

scholarly journals Retirement Security in an Aging Population

2014 ◽  
Vol 104 (5) ◽  
pp. 1-30 ◽  
Author(s):  
James M. Poterba
Keyword(s):  
Well Being ◽  
Pension Plans ◽  
Support Program ◽  
Standard Of Living ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Private Pensions ◽  
Elderly Individuals ◽  
Income Sources ◽  
Retirement Security

Elderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from private pensions, assets, and earnings are relatively more important for higher-income elderly individuals, who have more diverse income sources. The trend from private sector defined benefit to defined contribution pension plans has shifted responsibility for retirement security to individuals. A significant subset of the population is unlikely to be able to sustain their standard of living in retirement without higher pre-retirement saving.

scholarly journals Contribution volatility and public pension reform

2017 ◽  
Vol 17 (4) ◽  
pp. 513-533 ◽  
Author(s):  
TRAVIS ST. CLAIR ◽  
JUAN PABLO MARTINEZ GUZMAN
Keyword(s):  
Local Governments ◽  
Pension System ◽  
Pension Reform ◽  
Pension Plans ◽  
Fiscal Sustainability ◽  
Economic Downturn ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Unfunded Liabilities

AbstractIn the wake of the economic downturn of 2008–2009, researchers and policymakers have focused considerable attention on the extent of unfunded liabilities in US public sector pension plans and the implications for the long term fiscal sustainability of state and local governments. In response to the growth in liabilities, many states have introduced legislation that cuts back on defined benefit (DB) plan commitments, in some cases even shifting the pension system from a DB to a defined contribution or hybrid plan. This paper explores the factors that have led states to engage in pension reform, focusing particular attention on one factor that has only recently gained attention in the research literature: contribution volatility. While unfunded liabilities have significant long-term solvency implications, in the short term fluctuations in the amount of required contributions pose substantial difficulties for the ability of plan sponsors to balance budgets and engage in strategic planning. We begin by quantifying the volatility in the required contributions US states were expected to make between 2001 and 2013 and comparing the volatility of pension spending to other relevant tax and spending measures. Next, we describe the various types of pension reforms that states have implemented and examine the fiscal pressures facing those states that have engaged in reform. States with greater fluctuations in their required payments have been more likely to reduce benefits and increase employee contributions; they have also been more likely to institute these reforms sooner.

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