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June 2017

Long-Run Biological Interest Rate for Pay-as-You-Go Pensions in Advanced and Developing Countries

By Masahiro Nozaki (International Monetary Fund) How much of an internal rate of return would a sustainable pay-as-you-go pension system offer current and future generations equally? The answer is the sum of the Long-Run Biological Interest Rates (LBIR), the real-world equivalent of Samuelson's (1958) biological interest rate, and future productivity growth. Reflecting global population ageing, the median LBIR across 172 countries is as low as 1 percent per year. The LBIRs are particularly low in advanced countries, estimated to be...

Annuities and Retirement Income Planning

By Patrick J. Collins (Schultz Collins) This CFA Institute Research Foundation brief provides a broad-brush survey of the US annuity marketplace as of the end of 2014. It is a short and generic introduction to currently available annuity contracts. It is oriented toward both investors who are contemplating the use of annuities to generate income and hedge longevity risk and their advisers. It does not discuss the literature that evaluates annuities as instruments to enhance utility in the context of...

May 2017

Fiscal Challenges of Population Aging in Brazil

By Alfredo Cuevas, Izabela Karpowicz & Mauricio Soto (International Monetary Fund); Carlos Mulas-Granados (Government of the Kingdom of Spain)  In recent decades, population has been aging fast in Brazil while old age pensions and health related spending have increased. As the population ages, the spending trend threaten to reach unsustainable levels absent reforms. Increasing the retirement age is key, but by itself will not provide sufficient savings to close the pension system financing gap, and reforms reducing replacement rates are...

Pension Reform Options in Chile: Some Tradeoffs

By Marika Santoro (International Monetary Fund) In this paper, we study the macroeconomic impact of pension reform options in Chile, using a dynamic general equilibrium model. The main reform proposal considers raising contributions (employer side) and vehicle additional proceeds to individual accounts and to increase the support of solidarity pensions. We model increased contributions as a labor tax. We find the impact of this reform on GDP to be negative in the near to the medium run, with GDP declining...

Are We Ready to Make Decisions for Our Retirement?

PPI’s Op-Ed By Eduardo Rodriguez Montemayor Rapidly aging populations are forcing policymakers to rethink pensions. Defined contribution schemes are quickly becoming the norm, but people don’t yet seem ready for them. Academic evidence from economics and behavioural finance suggest that under many circumstances people may not be ready to take control of retirement savings investment. This is a challenging finding in a context where traditional defined benefit (DB) schemes, (which typically depend on individual salary history and length of service) are waning...

The Impact of Partisanship in the Era of Retrenchment. Insights from Quantitative Welfare State Research

By Frank Bandau (University of Bamberg) Does government partisanship matter when it comes to the size and generosity of the welfare state? While the answer to this question is clearly positive for the ‘golden age’, there is so far no clear-cut answer with regard to the subsequent era of welfare retrenchment. This is by no means due to a lack of research. Quite to the contrary, a substantial number of macro-quantitative studies published over the past 15 years have addressed...

The Evolution of ESMA and Direct Supervision: Are there Implications for EU Supervisory Governance?

By Elizabeth Howell (University of Cambridge) The European Securities and Markets Authority (‘ESMA’) was established over six years ago. It, and its sibling bodies for banking, and the insurance and occupational pensions sector, emerged from the ashes of the crises, and the agencies have been the topic of much discussion in academic scholarship from a variety of perspectives. This article provides a new situating of ESMA within the broader policy context. Employing empirical observations, and rooting it within the related...

The Swiss Occupational Pension System: A Governance View

By Nadège Bregnard (University of Neuchatel) This paper describes the current Swiss occupational pension system with a focus on its governance aspects by emphasizing on the minimum guarantees established by the law, the governance-related requirements, and the most recent supervision framework. It documents in details how the various and different Swiss pension funds are structured and organised and identify six key structure characteristics to classify them. The major distinction with other country pension systems is that pure defined-contributions plans do...

Interactions between Financial Incentives and Health in the Early Retirement Decision

By Pilar Garcia-Gomez & Eddy van Doorslaer (Erasmus University Rotterdam); Titus J. Galama (USC Center for Economic and Social Research) & Ángel López Nicolás (Universitat Pompeu Fabra) We present a theory of the relation between health and retirement that generates testable predictions regarding the interaction of health, wealth and financial incentives in retirement decisions. The theory predicts (i) that wealthier individuals (compared to poorer individuals) are more likely to retire for health reasons (affordability proposition), and (ii) that health problems...

Dangerous Flexibility – Retirement Reforms Reconsidered

By Axel H. Börsch-Supan, Tabea Bucher-Koenen, Vesile Kutlu-Koc & Nicolas Goll (Max Planck Society for the Advancement of the Sciences) Flexible retirement is supposed to increase labor supply of older workers without touching the third rail of pension politics, the highly unpopular increase of the retirement age. While this may have intuitive appeal, this paper shows that it might be wishful thinking. Economic theory tells us that flexible retirement policies can have a zero or positive effect on labor force...