Adequate Pension Research Articles

The Demographic Factor in the Sustainability of Spain’s Pension System

The falling number of births, increased life expectancy and future retirement of the baby-boomers represent a challenge for the sustainability of the pension system in Spain because the relationship between contributors and pensioners is now smaller. In this issue of Perspectivas Demográficas we shall examine the impact of these factors on the demographic sustainability of the pension system and the effects that several scenarios of death rate, fertility and immigration might have in times to come. The demographic conditions of the past, which were very favourable to the system, will not be repeated in future. However, the coming demographic situation need not be an obstacle for maintaining a sustainable, solidary and adequate pensions system based on the idea of distribution (pay-as-you-go pension system).

The effects of recent Spanish pension reforms on sustainability and pension adequacy

ABSTRACTThe Spanish pension system has been recently reformed as a response to the demographic challenge and with the objective of ensuring the sustainability of the pension system in the long-term. The overall reforms include changes in the majority of the system parameters, a new indexation rule and a sustainability factor that links life expectancy and the first pension amount. The aim of this work is to analyse how these reforms affect two important features of a pension system: fiscal sustainability and adequacy. For this purpose, the real internal rate of return (IRR) of the lifetime contributions and benefits and the prospective gross theoretical replacement rate (TRR), both before and after the reforms, have been computed. The calculations are case-study based, for a few hypothetical workers who are sufficiently representative of the earnings and retirement patterns in Spain. The results show that the real IRR is 0.7 p.p. lower and the prospective gross TRR is 18 p.p. lower after the reform process for the base case of a man with an uninterrupted career of 40 years with average earnings and a retirement age of 65. In addition, pension reform process in Spain has different effects among the individuals depending on the gender, level of earnings, retirement age and career length.

태아의 피보험적격 인정여부에 관한 보험법적 논의

태아의 피보험적격 인정여부에 관한 보험법적 논의

The effects of aging on notional defined contribution pension systems: A theoretical investigation

AbstractThis paper proposes a theoretical framework for analyzing the properties of pay‐as‐you‐go notional defined contributions (NDCs) systems within the context of aging. Different from the defined‐benefit scheme, where aging harms the financial sustainability of the social security system, the NDC determines pension benefits while taking into account life expectancy and demographic trends, turning the issue of financial sustainability into one of pension adequacy. This paper explores the balance sheet effects when life expectancy, retirement thresholds and entry age in the labor market vary by cohorts. The study suggests some solutions for practical issues concerning aging in NDC systems, such as (a) the bias related to the forecasts of survival rates, (b) the indexation of pension benefits and (c) the setup of tenure and age requirements for retirement.

Liquidity and Solvency in Pay-as-You-Go Defined Contribution Pension Schemes: A Continuous OLG Sustainability Framework

Notional Defined Contribution pension schemes are defined contribution plans which are pay-as-you-go financed. From a design viewpoint, the countries where NDCs have been implemented cannot guarantee sustainability due to the choice of notional return paid to the contributions and the indexation rate paid to pensions. We study how the scheme should be designed to achieve liquidity and solvency with a limited set of assumptions in a continuous overlapping generations model that increases traceability of the results. The adequacy and actuarial fairness are also jointly studied in the numerical example for the population of Belgium. We find that the proposed indexation and notional rate ensure sustainability and actuarial fairness. However, the effect on pension adequacy depends on the generosity of the scheme at retirement.

The ABCs of nonfinancial defined contribution (NDC) schemes

AbstractNonfinancial defined contribution (NDC) pension schemes have been successfully implemented since the mid‐1990s in a number of European countries such as Italy, Latvia, Norway, Poland and Sweden. The NDC approach features the lifelong contribution–benefit link of a financial defined contribution (FDC) personal account scheme, but is based on the pay‐as‐you‐go (PAYG) format. At its start out, the PAYG commitments of the preceding defined benefit (DB) system are converted into individual personal accounts, allowing for a smooth transition from the DB to the DC format, while avoiding the very high transition costs inherent in a move from a traditional PAYG DB scheme to a fully funded FDC scheme. The NDC approach implemented by the rule book is able to manage the economic and demographic risks inherent to a pension scheme and, by design, creates financial sustainability. As in any pension scheme, the linchpin between financial stability and adequacy is the retirement age; in the NDC approach the individual retirement age above the minimum age is by design self‐selected and by incentives should increase the effective retirement age in line with population ageing. As a systemic reform approach NDC has become a strong competitor to piecemeal parametric reforms of traditional nonfinancial DB (NDB) schemes. While frequent, these reforms are far from transparent and usually too timid and too late to create financial sustainability while providing adequate pensions for the average contributor. This article offers a largely non‐technical introduction to NDC schemes, their basic elements and advantages over NDB schemes, the key technical frontiers of the approach, and the experiences of NDC countries.

The cost and value of UK pensions

AbstractOver the last 20 years, the extent of defined benefit provision has declined substantially in the United Kingdom. Whilst most of the focus has been on deficits relating to past benefit accrual, the increasing cost of future benefit accrual is also important. There are two reasons for this. First, the change in the cost of defined benefit accrual represents the difference in the earnings for employees with membership of a defined benefit scheme and those with membership of a defined contribution scheme. Second, the current cost of defined benefit accrual gives an indication of the cost of an adequate pension. As such, it can be compared with levels of contribution to defined contribution schemes to determine whether these are adequate. I therefore look at how the cost of pensions has changed relative to the cost of non-pensions earnings. I also look at the main components of the change in pensions cost – those relating to benefits payable, discount rates and longevity – to analyse their relative importance. I find that the cost of employing a member of defined benefit pension scheme has consistently outpaced the cost of employing someone in a defined contribution arrangement. I also find that the current cost of accrual is significantly higher than the average level of payments to defined contribution schemes.

From the Replacement Rate to the Synthetic Indicator: A Global and Gender Measure of Pension Adequacy in the European Union

To measure the adequacy of pension systems in the world, one of the most commonly used indicators is the Replacement Rate. Our work is based on the statement that this indicator is imperfect itself to measure adequacy because it does not collect the multiple dimensions that it involves while being a static measurement. Consequently and based on the data provided by “The 2015 Pension Adequacy Report: current and future income adequacy in old age in the European Union” of the European Commission, in this paper we select a set of variables that are considered representative to measure the adequacy of pension systems from a dynamic and multidimensional perspective, and based on them, a synthetic adequacy indicator is developed. This indicator aims to compare European pension systems from the adequacy objective and to carry out continuous monitoring of the effects that the reform processes may have on the adequacy of pensions. The analysis is completed with the calculation of a gender indicator on pension adequacy for the European Union (EU-28) which identifies the still existing gap between men and women.

Pension Reforms in the EU since the Early 2000's: Achievements and Challenges Ahead

Most EU Member States have carried out substantial pension reforms over the last decades in order to enhance fiscal sustainability, while maintaining adequate pension income. The intensity of pension reforms has been particularly strong since 2000. These reforms have been implemented through a wide range of measures that have substantially modified the pension system rules and parameters. One of the most important elements of pension reforms, aside of whether countries engaged or not in a systemic change, has been the introduction of mechanisms aimed at automatically adjusting (indexing) the key pension parameters (pension age, benefits, financing resources) to demographic pressure (e.g. changes in life expectancy, increase in the dependency ratio). Indeed, since the mid-1990's, half of the EU Member States have adopted either automatic balancing mechanisms, sustainability factors and / or automatic links between retirement age and life expectancy. All these pension reforms are projected to have a substantial impact on containing future pension expenditure trends. According to the latest long-term projections in the 2015 Ageing Report, public pension expenditure is projected to be close to 11% of GDP over the long run in the EU, almost the same as in 2013. However, the fiscal impact of ageing is still projected to be substantial in many EU countries, becoming apparent already over the course of the next two decades. This is also due to the very gradual phasing in of already legislated reforms, an issue that raises questions about the intergenerational fairness of the reforms and poses some doubt on the time-consistency of their implementation. Indeed, the sustainability-enhancing pension reforms legislated in a majority of EU countries will lead to a reduction of generosity of public pension schemes for future generations of retirees. But to make sure that these reforms will not have to face political and social resistance and risk of reversal in the moment they start to be implemented in full, other flanking policy measures are likely to be necessary: for example, reforms that boost retirement incomes by effectively extending working lives and employability of older workers (also through flexible working arrangements that allow people to keep working beyond current formal retirement age and to step down gradually from full-time to part-time to very part-time work) and provide other means of retirement incomes (e.g. private pensions) and appropriate social-safety nets to avoid that low-wage people follow back in poverty at old age.

Are “Voluntary” Self-Employed Better Prepared for Retirement Than “Forced” Self-Employed?

When it comes to financial preparation for retirement, self-employed workers in many European countries face unique challenges not encountered by traditional wage earners. This is particularly true for self-employed workers because many self-employed individuals do not have large-scale access to employer-sponsored pensions, which are a mainstay of pension support for most workers in developed countries. In this investigation, we explored the saving practices and perceived future pension adequacy of self-employed workers aged 15–65 in Germany (N = 702) and the Netherlands (N = 655). Of particular interest for understanding saving practices was whether respondents felt that they voluntarily chose to become self-employed, or whether they felt “forced” to enter self-employment due to economic or labor market pressures. Forced self-employed individuals—some 25% of those who became self-employed out of necessity—were found to be less likely to save for retirement than their voluntary self-employed counterparts, and they envisioned a less optimistic future pension scenario for themselves. Discussion focuses on the need to change institutional practices and public policies that place self-employed individuals at a disadvantage—particularly those who are driven into self-employment based on economic pressures and a lack of opportunities in the traditional labor market.

Individual Pension Plans in Spain: How Expected Change in Future Income and Liquidity Constraints Shape the Behavior of Households

Understanding the motives that underlie Spaniards’ retirement saving decisions is important because many, if not most, future retirees will need to rely on personal savings to maintain a decent standard of living. The governor of the Bank of Spain has stated recently that the current public pension system will not guarantee an adequate pension to the citizens, advising to save now for retirement. In this debate on public pensions, and the complementary role that private pensions might play in Spain, this article has shed light on the decision of Spanish households to engage in individual pension plans and it has identified which factors determine the total amount saved in such retirement plans. Using micro data from the Bank of Spain (Survey of Household Finances 2011), the analysis has revealed that the expectations of lower future income, along with preferences for the financial risk and education, exert an important influence on the likelihood of enrolling in a private pension plan. University education minimizes the myopic behavior of households in the sense of making them more forward-looking and cautious in the face of their future well-being. Additionally using Heckman’s methodology to correct for the problem of selection bias, our results have revealed that liquidity constraints affect negatively the total amount of money saved for retirement.

Pension reforms in EU11 countries: An evaluation of post‐socialist pension policies

AbstractThis article evaluates the pension policy pathways of the 11 former state socialist nations that have joined the European Union since 2004. Focusing primarily on the post‐2004 period, the analysis discusses the most important measurable outcomes of these countries’ pension reforms, in terms of poverty alleviation, pension adequacy and fiscal sustainability. Going beyond the quantifiable concepts, we also investigate the quality of the 11 countries’ pension systems in terms of equity as well as efficiency, emphasizing the less conspicuous design errors present in these systems. Although these errors have received little attention to date, they may harm pension schemes along several dimensions, including their fiscal sustainability.

SINGLE CONTRIBUTION TO THE COMPULSORY STATE SOCIAL INSURANCE: FEATURES, TRENDS AND PROBLEMS

Introduction. Social insurance contributes to ensuring the necessary standard of living for the population and a balanced distribution of public goods. In today's conditions of financial, social and political instability, problems of functioning of the system of compulsory state social insurance are actualized. At the same time, the issue of financial support for this system, which is part ofa single contribution to the compulsory state social insurance, is ofgreat importance. Purpose. The purpose of the article is to find out the features, trends and problematic aspects of the functioning of a single social contribution as a source of the formation of financial resources of the system of compulsory state social insurance. Results. The article deals with the issue of the functioning of a single contribution as a source of the formation of financial resources of the system of compulsory state social insurance. The monitoring of the revenues of the single contribution to the compulsory state social insurance funds is carried out. The advantages and disadvantages of a single contribution to compulsory state social insurance are outlined. The attention is focused on the necessity of legalization of the fund of labor remuneration of economic entities as an important factor of influence on the financial provision of the system of compulsory state social insurance. Conclusion. In general, the principle of paying a single social contribution is practically applicable in all countries of the European Union, so the fact of its introduction brings our state closer to the generally accepted world standards. Taking into account that the income of a single social contribution to the compulsory state social insurance funds depends on the level of wagesjt is necessary to strengthen measures to create a system for stimulating the transition of workers from the shadow economy sector to the official one. Indeed, from non-payment of taxes and contributions from shadow incomes, the state loses billions of hryvnias of revenues to the state budget and funds of compulsory state social insurance, and workers remain without adequate social protection and adequate pension provision in the future. All this requires indepth study and practical solution.

MODERN TRENDS OF PRIVATE PENSION INSTITUTIONS DEVELOPMENT IN THE EUROPEAN UNION

Introduction. Current demographic trends and social and economic models initiate the challenges regarding the possibility of adequate pension provision of the population in many European countries. International organizations forecasts confirm the need to diversify the sources of pension benefits to the population by accelerating the development of private pension institutions. At the same time effective regulation environment of pension assets management should be provided. It must be done because of their important social value and interrelationship with financial markets, in particular in the aspect of their stable functioning. Purpose. The article aims to identify the key elements of the financial institutions functioning regarding pension assets managing in the European market. They can be determinants of the intensification of regulation modernization of private pension sector in terms of social and financial stability. Method (methodology). Structural and dynamics and correlation analysis of the private pension institutions activities in the European financial market have been considered in this research. Results. The features of EU private pension systems modern trends have been determined. They indicate an increase in financial fragility (in some countries) through the predominance of structures with a defined benefit among occupational pension programs. They also show a growth of share of more risky investments in the instruments of collective investment institutions in the structure of pension investment portfolios, high concentration of cross-border pension assets, sensitivity to cross-border contagion, taking into consideration the low values of home bias and the strategies homogeneity. Low levels of private pension programs coverage of the population, as well as a minor role in the economy (the ratio of pension assets to GDP) in many EU countries demonstrate the feasibility of stimulation the financial industry development. The key characteristics determine the necessity of development of prudential regulations (reduction of pension systems fragility), and stimulation regulations (standards implementation for the development of pan-European personal pension products, which will be standardized by main characteristics).

China’s pension system and reform: an OECD perspective

Population ageing is a worldwide phenomenon, but the speed and scale of ageing are much greater in China than in most other countries. This paper discusses the key demographic indicators of the population in China and provides a comparison with Organisation for Economic Co-operation and Development (OECD) countries. The evolution of the Chinese pension system is summarised before concentrating on the current structure for both public- and private-sector workers as well as rural and urban residents. The level of future pension promises for full career workers is calculated and compared with those of selected OECD countries. Possible future challenges are highlighted as China seeks to achieve an adequate and sustainable pension system. The paper highlights the issue of high level of pensioner poverty in comparison to many OECD countries as well as the low retirement age, particularly for women, despite China’s relatively high employment rates for older workers.

Are Voluntaryy Self-Employed Better Prepared for Retirement than Forcedd Self-Employed? The Case of the Netherlands and Germany

When it comes to financial preparation for retirement, self-employed workers in many European countries face unique challenges not encountered by traditional wage earners. This is particularly true for self-employed workers who do not supervise subordinate personnel. This is the case because many self-employed individuals in nations such as the Netherlands and Germany do not have large-scale access to employer-sponsored pensions, which are a mainstay of pension support for most workers in those two countries. In this investigation, we explored the saving practices and perceived future pension adequacy of self-employed workers aged 15-65 in Germany (N = 702) and the Netherlands (N = 655). Of particular interest was whether respondents felt that they voluntarily chose to become self-employed, or whether they felt “forced” to enter self-employment due to economic or labor market pressures. Findings revealed that some 25 percent of workers were driven into self-employment out of necessity. Moreover, forced self-employed individuals were found to be less likely to save for retirement than their voluntary self-employed counterparts, and they envisioned a less optimistic future pension scenario for themselves. Additional analyses focused on the demographic and psychological dimensions that underlie saving practices and perceptions of pension adequacy. Discussion focuses on the need to change institutional practices and public policies that place self-employed individuals at a disadvantage — particularly those who are driven into self-employment based on economic pressures and a lack of opportunities in the traditional labor market.

GUARANTEE VALUATION IN NOTIONAL DEFINED CONTRIBUTION PENSION SYSTEMS

AbstractThe notional defined contribution pension scheme combines pay-as-you-go financing and a defined contribution pension formula. The return on contributions is based on an index set by law, such as the growth rate of GDP, average wages or contribution payments. The volatility of this return compromises the system's pension adequacy and therefore guarantees may be needed. Here, we provide a minimum return guarantee to the pension contributions. The price is calculated in a utility indifference framework. We obtain a closed-form solution for a general dependence structure with exponential preferences and in presence of stochastic short interest rates.

Guarantee Valuation in Notional Defined Contribution Pension Systems

The notional defined contribution pension scheme combines pay-as-you-go financing and a defined contribution pension formula. The return on contributions is based on an index set by law, such as the growth rate of GDP, average wages, or contribution payments. The volatility of this return compromises the system's pension adequacy and therefore guarantees may be needed. Here we provide a minimum return guarantee to the pension contributions. The price is calculated in a utility indifference framework. We obtain a closed-form solution for a general dependence structure with exponential preferences and in presence of stochastic short interest rates.

Last Lovers by William Wharton in the opinions of seniors

The issues of old age, once neglected in terms of reflection and research on this period of life, in recent years took on another dimension. With the growth of the elderly population in the world, gradually more attention is paid to issues related to improving the quality of life of seniors. Of particular interest are those aspects of life that have a direct impact on the sense of well-being of the elderly, namely: family, health, finances. The aspect of health is however considered mostly in the context of an overall psychophysical fitness, access to health care, adequate pensions enabling the purchase of medicines, rehabilitation, etc. In contrast, they less frequently deal with issues related to sexual attractiveness of the seniors and their erotic needs. Old age still does not go hand in hand with the sexual appeal. Elderly women are seen as unnecessary, invisible. They are not perceived as being able to evoke sexual desire. This social reception affects the senior women’s perception of themselves. In the eyes of a community an elderly woman may still be attractive intellectually, but not physically. Stereotypes built around the old age also assume that people in late adulthood have no sexual needs

The 2015 Pension Adequacy Report’s Examination Of Extended Working Lives as a Route to Future Pension Adequacy

Thanks to recent reforms, projections suggest that public pension expenditure as a share of GDP might be no higher in 2060 than in 2013 for the EU. However, the adequacy of pensions is also important; if reforms leave an increasing number of older citizens without adequate incomes, they will surely fail. Policy makers must facilitate the extension of the working lives