Mental Time Travel and Retirement Savings

We portray the valuation of retirement savings in terms of a mental time travel journey in which a proposed contribution to a pension plan is projected forward to the plan member’s retirement date and this projected value is then discounted back to today, thereby giving a present or personal value. We set this within a broader framework of pension planning, which seeks to smooth consumption over the lifecycle. We explain how two psychological biases—exponential growth bias and present bias—can lead to a difference between the initial value of a pension contribution and its present value, such a difference reflecting an asymmetry between projection and discounting, and how such a difference might lead to inadequate retirement savings and hence to a lower than desired standard of living in retirement. We consider how the two biases might be mitigated.

The Analysis of the Danish Pension System

Subject. The article focuses on the Danish pension system, which is well known for its reliability and the return on pension savings. The study discusses Denmark, because the number of population (over 80 percent) makes voluntary pension contributions, which resonates with the pension reform in the Russian Federation and the idea of convincing the Russian people make voluntary pension contribution to non-governmental pension funds. Objectives. I make suggestions on adapting Denmark’s successful practices of using such pension products that provide for voluntary pension pension contributions. I analyze the Danish pension system by tier, statistics on people involved into various pension plans, determine strengths of cumulative mechanisms, which help independently save and preserve the standard of living of working people when they retire. Methods. The article is based on methods of comparative analysis, induction, deduction, graphical representation. Results. The article shows the amount of the governmental pension in Denmark, overviews variants of pension plans with definite contributions and payments, points out some common aspects of the Russian and Danish pension systems. I explain why the pension reform is needed due to demographic challenges, such as population aging and the inability of Russia’s pay-as-you-go pension system to ensure the decent living for the retired. Conclusions and Relevance. The Danish expertise can be borrowed for the Russian practice so as to create the second and the third components (tiers) of the pension system, which would include professional and personal pension plans to be formed on the conditionally voluntary basis The suggestions herein can be used by executive authorities to outline new pension plans. As for the practical relevance, the article adapts some elements of the Danish pension system to the Russian practice.

The Outlines of a Possible Pension System Funded with Human Capital

The broadly used pay-as-you-go (PAYG) pension system is intrinsically wrong. The essence of the problem is that the PAYG system distributes the yield of raising children, i.e., of human capital investment (which is essentially the pension contribution), in such a way that it disregards the extent to which individuals have contributed to this, and even whether it has occurred at all. This error can be corrected if we take the pension contribution to be the yield on an investment of human capital, and as such use this to pay back the costs and expenses of the raising of the contribution payer—overall to those who paid these costs and expenses at the time. Accordingly, the central question of my study is whether it is possible to construct a consistent pension system based on the above foundations, and how my ideas may be inserted into the Diamond–Samuelson model. The method of the study was logical analysis and the construction of a theoretical mathematical model. The results of the study show that it is possible to construct a public pension system that operates according to a different logic than today’s system, a system which is free from the effects of demographic fluctuations, which does not motivate the refusal to have children, and which will remain self-sufficient under all circumstances. The study achieves this by presenting a possible pension system of this kind in detail. Via the suitable modification of the Diamond–Samuelson model, I have succeeded in showing that the pension system I am proposing increases the willingness to have children up to the social optimum, in contrast to the fully (but traditionally) funded and PAYG systems. This system currently only exists in theory and may be regarded as a major theoretical innovation, which naturally has certain (although not particularly extensive) antecedents. Its introduction could enable the resolution of the contradictions of existing pension systems and could also provide a solution to the as yet unsolved problem of the increasingly expensive regeneration of human capital, and as such, its potential practical implications are immeasurable.

Assessment of the effectiveness of anti-COVID tax support for innovation activities of small and medium-sized enterprises in OECD countries

The global economy has rebounded from the lows of 2020, but its recovery will depend on innovations. Therefore, it is important to identify the most effective tax support instruments for the innovation activities of small and medium-sized enterprises (SMEs) that are used in the framework of anti-crisis economic policies in the OECD countries. It is suggested that tax incentives are the most effective tax instrument of all; the effectiveness of the profit tax benefit depends on the SME’s profitability; as to the social insurance and pension contribution, there is an allowable minimum of the rate, determined by the level of wages, that will stimulate innovation. To assess the effectiveness of tax support tools, the study used the methods of linear multivariate regression and simulation in Simulink. The source of information for regression analysis was the data published by the World Bank and the Organization for Economic Cooperation and Development (OECD). It was concluded that the most effective measures of tax support are tax incentives, as well as deferred payment of social insurance and pension contributions. The 10% profit tax was shown to be optimal to stimulate innovation provided the company keeps the saved profit for development. For innovative SMEs, the minimum allowable contribution rate for social insurance and pension provision, which stimulates their innovative activities, is 12%. The results of modeling confirmed that the proposed threshold indicators for supporting SMEs’ innovation activity can be an effective tool for overcoming the consequences of the global crisis caused by the COVID-19 pandemic.

Analysis of The Impact of Pension Scheme of State-Owned Companies of China Railways

<p>The purpose of this study was to investigate the factors influencing supplementary pension contribution among employees of China Railway Group Company Limited. Simple random sampling technique was used. A structured questionnaire with close-ended questions was used to solicit data from 421 respondents. Hierarchical multiple linear regression was employed in the analysis of the data. The findings of the study revealed that certain factors such as tax policy and reward system had influences on employees’ decisions to take additional pension schemes besides the mandatory pension schemes. A comfortable retired life of employees depends on the savings made during the days of active service. The study revealed that tax policy positively influenced supplementary pension contribution among employees. Reward system has been considered in many cases as having a positive effect on employee decisions. The findings of the study revealed that reward system positively and significantly influenced supplementary pension contribution among employees. In addition, both tax policy and reward system had influence on employee lifestyle.</p>

Optimal Defaults with Normative Ambiguity

Default effects are pervasive, but the reason they arise is often unclear. We study optimal policy when the planner does not know whether an observed default effect reflects a welfare-relevant preference or a mistake. Within a broad class of models, we find that determining optimal policy is impossible without resolving this ambiguity. Depending on the resolution, optimal policy tends in opposite directions: either minimizing the number of non-default choices or inducing active choice. We show how these considerations depend on whether active choosers make mistakes when selecting among non-default options. We illustrate our results using data on pension contribution defaults.

The trade-off between pension costs and salary expenditures in the public sector

We examine pension-cost crowd out of salary expenditures in the public sector using a 15-year data panel of state teacher pension plans spanning the Great Recession. While there is no evidence of salary crowd out prior to the Great Recession, there is a shift in the post-recession years such that a 1% (of salaries) increase in the annual required pension contribution corresponds to a decrease in total teacher salary expenditures of 0.24%. The effect operates through changes to the size of the teaching workforce, not changes to teacher wages. An explanation for the effect heterogeneity pre- and post-recession is that public employers are less able to shield the workforce from pension costs during times of fiscal stress. This problem is exacerbated because unlike other benefit costs, such as for health care, pension costs are countercyclical.

Saving for retirement: rules of thumb

Rules of thumb (RoTs) are proposed as a means of promoting higher levels of Defined Contribution (DC) pension saving and to help stimulate debate about the high and uncertain cost of pension provision, leading to the development of solutions. The Lifetime Pension Contribution (LPC) tells young people what pension contribution is required over a full working life to achieve a decent retirement income, calculated as 23% of average UK earnings. Another RoT is that each 1% of earnings provides a pension of 1.5% of earnings. Other RoTs show how costs vary by retirement age and if the saverʼs retirement planning is on track. The current high cost of pensions is partly due to low interest rates and the inefficiencies of the DC market, with inadequate bulk purchasing power and risk sharing. RoTs might help encourage higher employer contributions, either through automatic enrolment or on a voluntary basis.