May 2017

Contributory Retirement Saving Plans: Differences across Earnings Groups and Implications for Retirement Security

By Irena Dushi, Howard Iams & Christopher R. Tamborini (US Social Security Administration) This article examines how savings in defined contribution (DC) retirement plans vary across the earnings distribution. Specifically, the authors investigate the extent of an earnings gradient in access to, participation in, and levels of contribution to DC plans. Using a nationally representative sample of Survey of Income and Program Participation respondents to data from their W-2 tax records, the authors find that DC plan access, participation, and...

Non-Contributory Pensions and Savings: Evidence from Argentina

By Martín González-Rozada & Hernán Ruffo (Universidad Torcuato Di Tella) This paper examines the effects of Argentina's Plan de Inclusion Previsional (PIP), which changed the pension system in a way that generated a new noncontributory pillar, produced a huge expansion in pension coverage between 2005 and 2008 and a transfer of a vast amount of resources to households. Using a difference in differences methodology it is found that the PIP policy has reduced the incentives to work and to be...

The Effect of Non-Contributory Pensions on Saving in Mexico

By Catalina Amuedo-Dorantes (San Diego State Universit), Jorge Alonso Ortiz & Laura Juárez (ITAM) This paper examines the effects of non-contributory pension programs at the federal and state levels on Mexican households' saving patterns using micro data from the Mexican Income and Expenditure Survey. The federal program by itself appears to reduce the saving rate of households whose oldest member is either 18 to 54 or 65 to 69. State programs by themselves have no significant effects on household saving rates...

April 2017

Ethnic and Racial Disparities in Saving Behavior

By Mariela Dal Borgo (Bank of Mexico) Using pre-retirement data from the Health and Retirement Study, I find that median saving rates are 9p.p. larger for Whites than for Mexican Americans and Blacks. Two-thirds of each gap reflect changes in asset prices and a third reflects households’ active saving decisions. Since Blacks save more in pensions, only the racial gap disappears with the inclusion of retirement assets. Both saving gaps are mostly explained by differences in income and, especially for...

Nudge for Good? Choice Defaults and Spillover Effects

By Claus Ghesla, Manuel Grieder & Jan Schmitz (ETH Zurich) Policy makers increasingly use choice defaults to promote 'good' causes by influencing socially relevant decisions in desirable ways, e.g., to increase retirement savings, charitable giving, or pro-environmental choices. Such default nudges are remarkably successful when judged by their effects on the targeted behaviors in isolation. However, there is scant knowledge about possible spillover effects of defaults on subsequent related choices. Theoretically, such behavioral spillover effects could amplify, eliminate or even...

Financial History: Lessons of the Past for Reformers of the Present

By Gerard Caprio Jr. (Williams College) & Dimitri Vittas (World Bank) The environment in which financial institutions operate has changed greatly, but the history of financial development offers important lessons for today. Among the lessons financial history offers: Macroeconomic stability - low inflation and sound public finance - is important for creating the right incentives for banks and for facilitating the development of securities markets. High inflation and large fiscal deficits distort economic behavior in favor of short-term speculative projects and...

March 2017

Future savings and pension challenges need a new system

OUR retirement savings and pension systems face unprecedented pressures. Today’s western societies operate pension systems for lives of three score years and ten and populations with lots of young people and few retirees. Those assumptions no longer apply. Indeed, we’re not even sure when workers in their 20s, 30s, or even 40s can expect to retire or if they will do so at all. Much of the UK’s problems are because the state pension system is unfunded. What’s called our “National Insurance...

Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities

By Gianpaolo Parise (Bank for International Settlements) & Kim Peijnenburg (Netspar) We explore how financial distress and choices are affected by non cognitive abilities. Our measures stem from research in psychology and economics. In a representative panel of households, we find people in the bottom decile of non cognitive abilities are five times more likely to experience financial distress compared to those in the top decile. (more…)

Personalized Information as a Tool to Improve Pension Savings: Results from a Randomized Control Trial in Chile

By Olga Fuentes; Jeanne Lafortune; Julio Riutort; José Tessada Félix Villatoro We randomly offer to workers in Chile personalized versus generalized information about their pension savings and forecasted pension income. Personalized information increased the probability and amounts of voluntary contributions after one year without crowding-out other forms of savings. Personalization appears to be very important: individuals who overestimated their pension at the time of the intervention saved more. Thus, a person’s inability to understand how the pension system affects them...

February 2017

Retirement Spending and Biological Age

By Huang Huaxiong, Moshe A. Milevsky & T. S. Salisbury (York University) Abstract:     We solve a retirement lifecycle model in which the consumer's age does not move in lockstep with calendar time. Instead, biological age increases at a stochastic non-linear rate in chronological age, which one can think of as working with a clock that occasionally moves backwards in time. Our paper is inspired by the growing body of medical literature that has identified biomarkers of aging which --...