Contribution Pension Research Articles

How would 401(k) ‘Rothification’ alter saving, retirement security, and inequality?

AbstractMany nations incentivize retirement saving by letting workers defer taxes on pension contributions, imposing them when retirees withdraw their funds. Using a dynamic life-cycle model, we show how ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – alters saving, investment, consumption, and Social Security claiming patterns. We find that taxing pension contributions instead of withdrawals leads to delayed retirement, somewhat lower lifetime tax payments, and relatively small reductions in consumption. Indeed, the two tax regimes generate quite similar relative inequality metrics: the relative consumption inequality ratio under taxed-exempt-exempt (TEE) is only 4% higher than that in the exempt-exempt-taxed (EET) case. Moreover, results indicate that the Gini measures are also strikingly similar under the EET and the TEE regimes for lifetime consumption, cash on hand, and 401(k) assets, differing by only 1–4%. While tax payments are higher early in life under the TEE regime, they are slightly lower in the long run. Moreover, higher EET tax payments are also accompanied by higher volatility. We therefore find few reasons for policymakers to favor either tax approach on egalitarian or revenue-enhancing grounds.

Effect of household's financial literacy on pension decision making: evidence from China's new rural pension program

PurposeChina's New Rural Pension Program (NRPP) has been implemented for a decade, but the factors that facilitate rural residents' participation have received little attention. This study aims to investigate whether financial literacy has an influence on rural residents' behavior of participation in the NRPP. In particular, this study further verifies if high financial literacy is important and whether financial education can enhance the impact of financial literacy on current, long-term and dynamic pension decisions of rural households.Design/methodology/approachThis study investigates the impact of financial literacy on rural residents' participation in China's NRPP using the China Household Financial Survey (CHFS) Data of 2015 and 2017. This study constructs an analytical framework for current, long-term and dynamic impacts and comprehensively analyzes the value of financial literacy in the decision making of the NRPP. This study uses the instrumental variable method to solve the possible endogeneity problem. In addition, the authors also demonstrate the positive role of high financial literacy in household pension decisions. Further analysis reveals gender and regional heterogeneity in the impact of financial literacy on pension decisions. The moderating effect model explores whether financial education has a significant moderating effect on financial literacy and pension decision making of the NRPP.FindingsFinancial literacy can improve the participation behavior of households in rural areas (dynamic effect) and promote their current and long-term participation in the NRPP, choosing a higher pension contribution level in the NRPP. However, financial literacy has no significant effect on the change in the contribution amount of the NRPP. Further research finds that high financial literacy has comparative advantages in household pension decision making in rural areas. There are gender and regional differences in the impact of financial literacy on pension decisions. In addition, effective financial literacy education enhances the current, long-term and dynamic impacts of residents' financial literacy on NRPP participation and pension contributions.Practical implicationsThis study comprehensively considers the impact of financial literacy on pension decision making behavior from three aspects: current, long-term and dynamic, making up for the dearth in the existing literature that only focuses on the impact of financial literacy on current financial behaviors and bridging the gap between the theoretical framework and experimental results. Our study proposes new policy implications: (1) Governments and financial institutions should pay attention to financial literacy and education levels in rural areas and carry out financial education and training programs to increase social welfare levels by increasing rural residents' participation and pension contribution. (2) The community can strengthen the policy advocacy of the NRPP and make people develop a stronger sense of trust toward it. The government can also subsidize individual accounts through financial support.Originality/valueThis study comprehensively considers the impact of financial literacy on pension decision-making behavior from three aspects: current, long-term and dynamic, making up for the dearth in the existing literature that only focuses on the impact of financial literacy on current financial behaviors and bridging the gap between the theoretical framework and experimental results. Our study proposes new policy implications: (1) Governments and financial institutions should pay attention to financial literacy and education levels in rural areas and carry out financial education and training programs to increase social welfare levels by increasing rural residents' participation and pension contribution. (2) The community can strengthen the policy advocacy of the NRPP and make people develop a stronger sense of trust toward it. The government can also subsidize individual accounts through financial support.

UK Vice Chancellor compensation: Do they get what they deserve?

The compensation received by UK Vice Chancellors (VCs) has been on an upward trend in recent years and attracted a lot of negative media attention. In this paper, we examine whether VCs receive the compensation they deserve. Using a panel dataset covering the academic years 2007/2008 to 2018/2019, we develop a model to predict expected VC compensation to determine whether VCs are over- or undercompensated. Our model finds that VCs are not overcompensated regarding their base salary, but some are overcompensated in terms of their benefits and pension contributions. However, there is very little difference in terms of characteristics of over- and undercompensated VCs, indicating that on average, UK VCs receive the compensation they deserve. For robustness purposes, we employ a variety of alternative model specifications and subsamples which all support our previous findings.

CALCULATION OF INCOME TAX (PPH) ARTICLE 21 PERMANENT EMPLOYEES (Case Study at the Semarang District Attorney's Office in 2020)

<em>Income Tax is a mandatory contribution imposed on a Tax Subject on income received or earned in one tax year. The problem that arises is that there is still an error in calculating the income tax at the Semarang District Attorney's Office. The purpose of this study was to determine the calculation, payment, and reporting of Income Tax (PPh) Article 21 for permanent employees at the Semarang District Attorney's Office in 2020 and to determine the suitability of calculating, paying, and reporting Income Tax (PPh) Article 21 for permanent employees at the Prosecutor's Office. State of Semarang Regency in 2020 based on Law Number 36 of 2008 and Regulation of the Director General of Taxes Number PER-16/PJ/2016. The data used are primary and secondary data. Methods of data collection using observation, interviews and literature study. The writing method uses descriptive and exposition methods. The results of this study indicate that the Semarang District Attorney's Office has calculated, paid and reported Income Tax (PPh) Article 21 for permanent employees in 2020 through a third party (KPPN). In tax calculations, there are still errors including in determining status, office fees, pension contributions and PTKP which affect the determination of Article 21 Income Tax (PPh) which is deducted, resulting in an underpayment difference of Rp.1,864,150.00</em>

Optimal DC pension investment with square-root factor processes under stochastic income and inflation risks

ABSTRACT This paper studies optimally defined contribution (DC) pension investment problems under the expected utility maximization framework with stochastic income and inflation risks. The member has access to a financial market consisting of a risk-free asset (money account), an inflation-indexed bond, and a stock. The market price of volatility risk is assumed to depend on an affine-form, Markovian, square-root factor process, while the return rate and the volatility of the stock are possibly given by general non-Markovian, unbounded stochastic processes. This financial framework recovers the Black–Scholes model, constant elasticity of variance (CEV) model, Heston model, 3/2 model, 4/2 model, and some non-Markovian models as exceptional cases. To tackle the potentially non-Markovian structures, we adopt a backward stochastic differential equation (BSDE) approach. By solving the associated BSDEs explicitly, closed-form expressions for the optimal investment strategies and optimal value functions are obtained for the power, logarithmic, and exponential utility functions. Moreover, explicit solutions to some special cases of our portfolio model are provided. Finally, numerical examples are provided to illustrate the effects of model parameters on the optimal investment strategies under the 4/2 model.

Mandatory pension savings and long-run debt accumulation: evidence from Danish low-wage earners

AbstractBased on two decades of Danish register data at the individual level, this paper finds that a 1-dollar increase in pension wealth leads to a 42-cent rise in total debt for a group of low-wage earners. Collective bargaining in the labor market provides time-sector variation in mandatory pension contribution rates, which we exploit in two empirical research designs; an event study and a cross-sectional instrumental variable regression model. Both methods demonstrate that the debt rise is accompanied by increased housing wealth and homeownership rates. Together, the empirical evidence indicates that mandatory pension contributions lead to a significant increase in net wealth, as well as in gross debt.

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Abstract. Introduction. With the constant growth of the deficit in the financing of pension benefits and the real threat of the state's inability to guarantee pensions, the role of the private pension system is growing. The burden on the state pension system leads to an increase in the financial burden for individuals and legal entities, due to increased contributions to the state Pension Fund, which leads to a decrease in the amount of financial resources for the development of its activities. Purpose. The purpose of the article is to analyze the activities of private pension funds in the current socio-economic development of the country.Results. The effective functioning of the national economy depends on the level of financial security of various economic entities. With the help of mobilization of their funds there is an active distribution and redistribution of financial resources between different sectors of the economy. A developed system of financial institutions is needed to develop the process of accumulation of free money. They are the ones who transfer capital from those who have savings and those who need it. Among many types of financial institutions, private pension funds deserve considerable attention. Given the practical absence of a funded system of compulsory state pension insurance, as well as the insufficient level of funding for the solidarity system, they contribute to improving the economic well-being of the population. By concluding an agreement with the NPF, each citizen can determine the amount of future additional non-state pension benefits. Thus, without the effective functioning of the third level of the pension system, the financial security of the population in old age will be minimal, which will reduce the economic development of Ukraine as a whole. Conclusions. For the effective functioning of the NPF network in Ukraine it is necessary: - ensure transparency of NPF activities and increase protection of the rights of their participants; - to establish a fund for guaranteeing pension contributions of participants, which would return part of such contributions in case of bankruptcy of the selected NPF. This would increase public confidence in these financial institutions; - to improve and modernize the regulatory framework related to NPF risk management; - take measures to improve the financial literacy of the population and increase public interest in participating in the private pension system; - reduce the taxation of payments to NPF participants when they reach retirement age; - provide tax benefits for legal entities - founders of NPFs, with a significant number of participants; - to ensure the development of the financial market in Ukraine, which will expand the range of financial instruments in which NPFs can invest.

CONTRIBUTORY PENSION SCHEME ON NIGERIA ECONOMIC GROWTH

This study was embarked upon to provide empirical evidence on the effect of contributory pension scheme on economic growth in Nigeria. Data for the study were secondary sourced from various records of PenCom Annual Reports and CBN Bulletin (database). The data were computed with the use of Statistical Package for Social Sciences (SPSS). It was concluded that pension fund assets and pension contribution /savings mobilized over the years have positive and insignificant impact on economic growth. The implication of this finding is that the authorities concerned have not been able to use the pension fund asset and savings mobilized to boost economic growth in Nigeria. It was therefore recommended that, there should be more emphasis on the management of pension assets in the capital market as well as government bond, real estate and investment trust to boost Gross Domestic Product (GDP) of the country (Nigeria). Secondly, there should be prompt reconciliation between Pension Fund Administrators (PFAs) and Pension Fund Custodians. This will bring transparency and accountability to the system. Finally, PenCom should ensure effective monitoring, supervision and enforcement of the provision of the PRA 2004, which are the inevitable ingredients in the Contributory Pension Scheme towards Gross Domestic Product (GDP).

Modelling the Effect of Macro-economic Variables on Pension Contribution in Nigeria

In recent years, the performance of pension contribution funds administrators in Nigeria has been rated as unsatisfactory, negatively impacting the ambitions of retirees. The broad view is that changes in a few macroeconomic variables, such as the foreign exchange rate, annual inflation rate, savings deposit rate, and GDP (income), must have played a role in this issue. As a result, the purpose of this study is to look at the impact of these variables on the pension contribution funds. The research was conducted in Nigeria, and annual data sets on pension contributions and other macroeconomic factors were acquired for the years 2004 through 2020.
 The long and short run dynamics of some macroeconomic variables and pension contribution were analyzed using the Auto-regressive Distributed Lag method. The analysis demonstrates a positive and significant association between exchange rate and pension contributions in both the long and short run. Similarly, inflation rate demonstrates a negative and statistically significant link with pension contributions in both the long and short run. The results also show that the Error Correction Model (ECM) coefficient has the correct sign: negative, less than one, and statistically significant which means that, the system will correct itself at a rate of 38 percent from the short to the long run. The study concludes that there should be concerted efforts by the government to curve the excessive inflation rate down, deposit rate should be monitored and always relate it to pensioners fund in order to maintain its financial sustainability.

A Study on the Impact of Population Age Structure Change on Economic Growth in China

In the process of changes in total population, structure, and spatial distribution, it is essential to investigate the inner rules of the harmonious correlation between population and development. Thus, this study examines the correlation between demographic variables (e.g., delayed retirement, total fertility rate, and life expectancy) and economic development in China based on the overlapping generations (OLG) model and numerical simulation method. The findings reveal the following: (1) total social output level positively correlates with survival probability; (2) the contribution of the aging labor force (retirement age delay) to the total output is significant and an essential source of sustainable economic growth; (3) aggregate output increases first and then decreases with the increase in individual pension contributions rate, and the correlation between the two is a ∩-shaped curve. The policy implications of this study are that China’s economic transformation is a general trend, which should promote the upgrading of the demographic dividend from quantitative type to qualitative type and tap the human capital potential to increase the capital-based demographic dividend and activate the gender dividend.

English

This study investigated lecturers’ perception of contributory pension scheme implementation and job commitment in South-South Nigerian universities. To guide the study, two research questions and one hypothesis were raised. A descriptive survey research that adopted correlational design. The population of the study was all the lecturers in the six federal universities in South-South Nigeria. The sample consisted of 579 lecturers in four selected universities established before the introduction of Contributory Pension Scheme. A multistage stratified random sampling was used in selecting the sample size of the study. Two research questionnaires were used for data collection, “Contributory pension scheme implementation Questionnaire (CPSIQ)’’ and “University Lecturers’ Job Commitment Questionnaire (ULJCQ)”. The reliability of the questionnaires were determined using Cronbach alpha statistics with values of 0.96 for CPSIQ and 0.83 for ULJCQ respectively. The data collected were collated and analyzed with Mean (x?) and standard deviation to answer the research questions while the Pearson Product Moment Correlation Statistic was used to test the hypothesis at 0.05 level of significance. The study revealed that the level of contributory pension scheme implementation as perceived by lecturers in South-South Nigerian Universities was low. It also revealed that the level of Job Commitment of University Lecturers in South-South Nigerian Universities was low; and that there was a significant relationship between Contributory Pension Implementation and Lecturers’ Job Commitment in South-South Nigerian Universities. The study therefore, recommended among others that government and university management should address the concerns of lecturers about the implementation of Contributory Pension Scheme in Nigerian Universities by ensuring prompt and regular remittance of deductions to lecturers’ Retirement Savings Accounts (RSA) so as to create confidence.   Key words: Contributory Pension Scheme, implementation, job commitment.

International experience in financing self-employed pensions

The rapid development of modern self-employment, the massive transition from employment to self-employment and vice versa is a challenge for traditional pension systems. The Organisation for Economic Co-operation and Development (OECD) responded by adopting compulsory state pension schemes for the self-employed shared with employees. Russia following global trends with a small-time lag, unlike others, provides an unconditional guarantee of social pensions. It is all the more important to study the advanced international experience in attracting the self-employed to pension insurance. This is the aim of the study. Research tasks are as follows: to identify different approaches to organizing pension insurance for the self-employed across OECD countries, to examine the mechanisms and factors arising, and to evaluate their performance. The research method is cluster analysis of the generated self-employed pensions parametric indicators database according to OECD data (2019–2021) (18 indicators as part of clustering, architecture, finance, performance factors) for 28 countries. The study identifies 3 clusters (approaches) to the organization of pension provision for the self-employed: 1 — employee-like mandatory contributions to state pension schemes; 2 — mandatory contributions with advantages; 3 — voluntary pension contributions with advantages. In general, none of the approaches can be called “the best”. The effectiveness of pension decreases with any form of low-income self-employed inclusion in income-based pension schemes, as well as dependent self-employment. The author concludes that for Russia alternative options for self-employed pensions are quasi-mandatory pension insurance, self-employed employee-like participation in voluntary funded pension schemes only, state co-financing, practical training in financial literacy without going into the depth of financial knowledge. Discussion for further research is a detailed study of the application of the results into self-employed pension insurance practice in Russia.

The Incidence of Pension Contributions: A Panel Based Analysis of the Impact of Pension Contributions on Labor Cost, Wages and Labor Supply

One of the key elements in the planned pension reform in the Netherlands is to abolish the implicit subsidy from younger to older workers inherent in pension schemes with age independent contribution and accrual rates. This paper investigates the impact of changes in contribution rates on wages, labor costs and labor supply using a rich administrative data set covering individual employees in the Netherlands for the period 2006–2012. With a panel-based approach and data on both marginal and average contribution rates we aim to provide insight into the mechanisms underlying the incidence and labor supply (in hours) effects of pension contributions. For a two-year change in pension contributions we find that 70% of this change is passed on to the labor costs of employers, while 30% is passed on to the net wage of the employee. No significant effects are found for labor supply. At least in the short and medium run, our results seem at variance with the standard demand-and-supply model for the labor market, but are consistent with a bargaining model.

Pembentukan Program Dana Pensiun Manfaat Pasti Dengan Metode Benefit Prorate Constant Percent

Every employee is entitled to a future guarantee after the end of the working period. This study aims to establish a defined benefit pension plan which shows whether the age at work and the age at entering the pension plan affect pension benefits and contributions. This research is a literature study using case studies from secondary data of employer pension fund programs at PT. PLN West Kalimantan Region. The results obtained from this study include: 1) the greater the age to enter the pension fund program, the higher the contribution to be paid each year based on the age at which a person enters the partnership, and 2) the greater the age at which a person enters work, the benefits he receives. will be smaller based on participants with different working age and entry age into the same pension plan.

Optimal Defaults with Normative Ambiguity

Abstract 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 nondefault choices or inducing active choice. We show how these considerations depend on whether active choosers make mistakes when selecting among nondefault options. We illustrate our results using data on pension contribution defaults.

Unending Reforms of the Nigerian Pensions Act: The Dilemma of the Pensioners

The dearth of satisfactory retirement plans coupled with poor retirees’ well-being led to the introduction of the contributory pension scheme. Pensions administration in Nigeria dates back to the 1950s. However, with effect from June 2004, a new Pension scheme evolved with the enactment of the Pension Reforms Act 2004. The new Act introduced the new pension scheme in Nigeria, a defined contributory scheme, unlike the old scheme which was mostly derived benefits. Although the new scheme was anticipated to be better than the old scheme as it was expected to remedy the lacuna and shortfalls predominant in the old scheme, there were noticeable errors and it subsequently became imperative to enact the Pension Reforms Act 2014 on 1st July 2014, and there are already agitations for a change. Unfortunately, most retirees or would-be-retirees do not understand the procedures or activities of PENCOM, the Pension Fund Administrators, and other relevant participants in the industry. This is made worst by the lack of education in this regard until workers are on their exit year. This research is carried out to assess the glitches occasioned by the different reforms of the Nigerian Pension Act. This paper has examined the preparedness and fears over retirement. It is advocated that the continuous or unending reforms of the Pensions laws in Nigeria, coupled with the fraud exposed by the National Assembly in 2012 with the new Pension Scheme, only adds up to the dilemma of the Pensioners.

Contributory Pension Scheme and Per Capita Income in Nigeria (2004-2020)

Contributory Pension Scheme and Per Capita Income in Nigeria (2004-2020)

The Effect of Merging Pension Funds on Provision of Retirement Benefits in Tanzania: A Survey of Retirees in Dar es Salaam Region

Prior to merging pension schemes in the year 2018, there were a total of five recognized pension schemes in Tanzania. This paper investigated the impact of merging pension funds on the provision of retirement benefits in Tanzania. Specifically this paper intends to examine the impact of merging membership contributions on the provision of retirement benefits in Tanzania. A survey research design was deployed. Total of 100 retirees of Public Service Social Security Fund (PSSSF) retired from 2018 onwards in Dar es Salaam Region were involved. Non-probability sampling technique was deployed and the required sample was selected using purposive and convenience sampling methods. The obtained data was analysed quantitatively using descriptive statistics and Pearson’s correlation analysis. Overall results of this study showed that merging membership contributions, has positive and significant impact on the provision of retirement benefits (r= 0.311 respectively at 0.05 significant level). The study concludes that, the decision to merge four public pension fund; Local Authority Pension Fund (LAPF), Parastatal Pension Fund (PPF), Government Employees Provident Fund (GEPF) and Public Service Pension Fund (PSPF) to form Public Service Social Security Fund (PSSSF) has significant impact on the provision of retirement benefits to retirees in Tanzania. In order to ensure that merging the pension funds improves provision of the retirement benefits, the Government through PSSSF management should take measures such as increase sense of care of the pension contributions to employees of the PSSSF and by strengthening internal control systems.

Analysis of the financial and legal regulation of the pension system of Chile

The article examines the model of the pension system of Chile using the analysis of its regulatory legislative acts. The features of maintaining individual pension accounts, the formation and investment of pension contributions, the appointment of pension payments, and also the activities of supervisory and control bodies are considered. The analysis of the effectiveness of this pension system is carried out, its positive and negative sides are revealed. The article also identifies the main trends peculiar to the pension system of Chile and of significant importance when considering the construction and development of pension systems in other countries.

КАК ОБЕСПЕЧИТЬ БУДУЩУЮ СТАРОСТЬ? УСТАНОВКИ И СТРАТЕГИИ МОЛОДЕЖИ

The subject of the study is the attitudes and strategies of young people for future old age. The article presents the results of a sociological survey of Russian youth, reflecting the strategies of young people regarding ways to ensure their future financial security in old age, their ideas about the standard of living in old age, as well as the features of current financial behavior, which is the aim of this paper. The relevance of the study is due to the increasing role of young people in the formation of the traditional pension model of "intergenerational transfer", in which current pensions are paid from the pension contributions of the younger generation. The empirical base of the study was the data of a mass survey of young people living in Russia, followed by a factor analysis procedure implemented by the principal component method with subsequent rotation. The scientific novelty consists in identifying the main strategies of young people in relation to ensuring financial security in old age, in particular, the authors determined what young people expect to live in old age; factor settings: pension, investment, labor. Based on these factors, a cluster analysis was carried out by the K-means method, which resulted in 4 clusters of strategies, namely, the strategies of 1) "investor", 2) "new pensioner", 3) "traditional pensioner" and 4) "undecided optimist". The results of the study can be used by federal and regional government bodies, financial organizations for the purpose of further developments in the field of ensuring the effective operation of the pension system, the financial market, in particular, the development of new financial products and services, which are of interest to this socio-demographic group.