Income Replacement Rates Research Articles

The (dynamic) effect of retirement on food purchases

We investigate the potential dynamics in the effect of retirement, on food-at-home purchases and dietary quality in Denmark. We combine Home-scan data with nutritional information and administrative data on retirement, income and health status. The panel contains 497 retiring and 1,471 control households. We estimate the effect of retirement up to 10 years after the date of retirement by using Fixed Effects with health and wealth proxies, as well as Fixed Effects IV with the ages eligible for retirement as instruments to control for the potential endogeneity of retirement. Based on the Fixed effects results we find that overall dietary quality increase slightly at retirement, but find only minor and mostly insignificant changes in the individual components of the diet. The effects are found to be of the same magnitude, but insignificant in the FE-IV estimation. Hence, there seem to be a small increase in dietary health upon retirement in Denmark. The results for food expenditure and energy consumption are ambiguous. Based on the FE with proxy variables we find indications of long-run adjustments in food expenditures, while energy consumption is immediately affected by retirement, but has no further adjustment. Both effects are insignificant in the FE-IV estimation. The very small changes observed, suggest that dietary behaviour might be governed by habitual behaviour and might also be due to the high income replacement rate at retirement in Denmark.

The Increasing Investment of Senior Housing for Chinese Life Insurance Companies: Reasons and Motivations

In China, there has been a notable growth in the practice of life insurance companies investing in senior housing projects, which has gained significant popularity. 8 out of 10 largest life insurance businesses are actively engaged in the life insurance market. The senior housing firm with the highest market share is owned by a life insurance company, which has successfully sold 190,000 products through its investments in senior housing. This article seeks to present the business model and elucidate the underlying rationales. A thorough review of the current body of literature is conducted, followed by the use of the case study methodology. This study concluded that life insurance products, such as the happiness guide, play a crucial role in the economic model of life insurance and senior housing. The reasons were categorized into internal and external factors. The expansion of liabilities is an internal factor that is influenced by the leverage effect of a senior housing projects. Moreover, the features of insurance capital exhibit compatibility with the investment of senior housing. Additionally, external factors such as a poor income replacement rate and insufficient availability of high-quality senior housing might also contribute to the condition.

Retirement Saving Over the Life Cycle: Evidence from a Developing Country

ABSTRACT Despite its importance, little is known about how individuals save for retirement through tax-advantaged vehicles over their working lives. Using Thailand’s population of tax returns, this study examines the age profile of retirement saving and explores its implications for retirement savings adequacy. We find that the life-cycle pattern in retirement saving is hump-shaped across age. It rises from 3.0% when one begins working to 4.6% at age 46–48, then declines as one approaches retirement. The retirement saving rates peak later for higher-income workers. For all income groups, we also document the large role of the low-risk saving vehicle throughout the working life. Based on the predicted life-cycle saving profile, we estimate the income replacement rate from tax-advantaged saving vehicles to be around 24%, which is in line with evidence from advanced economies.

Income protection in the New Zealand tax-transfer system

This research note investigates income-replacement rates provided by the New Zealand welfare system when an individual loses their employment. We utilise New Zealand Treasury’s microsimulation model, based on tax and transfer rules from April 2018 to March 2019, for a variety of household scenarios. Results indicate that replacement rates are higher (above 50 percent) for those with children and for those earning low and median wage rates. These findings are highly relevant to policymakers, as they provide indicators of the adequacy of the welfare system and can inform design aspects of a potential unemployment insurance scheme.

Pension Security Level of Urban Employees in China Based on CHIPs

In 2019, the Chinese government has put forward comprehensive plan for reducing social insurance premium rate, which will affect the measurement of the pension security level. In order to evaluate the pension level, this paper uses CHIPs data from 1988 to 2018 to calculate “empirical” pension replacement rate by “empirical” method based on different wage calibers. The result shows that the pension replacement rate and income replacement rate of urban employees have gradually declined in the past 30 years. The pension level of nonprivate employees is lower than that of insured employees, and that of insured employees is lower than that of full‐scale employees. The pension level of male, high‐income groups, the older generation, organs, and institutions is much higher than that of female, low‐income groups, the younger generation, and enterprises relatively. Compared with other countries, the pension replacement rate of urban employees in China is not low, but the income replacement rate is relatively low. This paper makes an in‐depth analysis of the actual pension level under the new policy. As a result, it is necessary to vigorously develop multilevel and multipillar pension system such as enterprise annuity, occupational annuity, and commercial pension insurance, so as to improve the pension level of urban employees.

Effect of Disability Benefit Income Replacement Rates on Employment and Risk of Poverty for People with Disabilities – Working Paper

Effect of Disability Benefit Income Replacement Rates on Employment and Risk of Poverty for People with Disabilities – Working Paper

IMPACT OF DIFFERENT LIFE-CYCLE SAVING STRATEGIES AND UNEMPLOYMENT ON INDIVIDUAL SAVINGS IN DEFINED CONTRIBUTION PENSION SCHEME IN SLOVAKIA

Searching for the optimal saving strategy is often tied with the life-cycle strategies where only the age of a saver is considered for setting the allocation profile between equities and bonds. Our article contributes to the debate by looking at the performance and adequacy risks arising from applying age-based saving strategies for savers in funded pension schemes. As many studies have proven the shift of the risk onto savers in defined contribution pension schemes under various saving strategies, we contribute to the debate by providing simulations of expected accumulated savings via funded pension scheme under the various life-cycle income profiles and existence of unemployment risk. Using the resampling simulation technique, we compare the fixed and age-based strategies of three different agents with various life-cycle income paths and different unemployment risk. We compare the expected amount of savings and calculate relative indicators comparing the expected monthly benefits, income replacement rate. We look closely on the impact of unemployment on the value of savings and calculate the unemployment factor explaining the value of savings lost due to the periods of unemployment. By combining life-cycle income functions of individuals with different education level and unemployment risk, we show that decisions of implementing low risk saving strategies are suboptimal and lead to a substantial decrease in replacement ratios not only for higher income cohorts but especially for the lowest ones. At the same time, we prove that employing low risk saving strategy leads to the increase of adequacy risk especially driven by the unemployment risk that is higher for lower education individuals. We conclude that age-based life-cycle saving strategies, where the remaining saving horizon is the only factor defining the allocation profile is not the optimal saving strategy and other factors should be considered as well when searching for optimal saving strategy.

An analysis of the Dutch-style pension plans proposed by UK policy-makers

AbstractCollective Defined Contribution (CDC) pension schemes are a variant of collective pension plans that are present in many countries and especially common in the Netherlands. CDC schemes are based on the pooled management of the retirement savings of all members, thereby incorporating inter-generational risk-sharing features. Employers are not subject to investment and longevity risks as these are transferred to plan members collectively. In this paper, we discuss policy related to the proposed introduction of CDC schemes to the UK. By means of a simulation-based study, we compare the performance of CDC schemes vis-à-vis typical Defined Contribution schemes under different investment strategies. We find that CDC schemes may provide retirees with a higher income replacement rate on average, together with less uncertainty.

Goals-based Investing and Contributing Strategies for an Income Replacement Rate in the DC Occupational Pension Scheme of Korea

Goals-based Investing and Contributing Strategies for an Income Replacement Rate in the DC Occupational Pension Scheme of Korea

Promoting gender equality through regulation: the case of parental leave

ABSTRACT Parental leave regulation is not gender-neutral. Policies that encourage fathers’ leave-taking relate to the enhancement of child well-being, caring fatherhood, and gender equality among the couple and in the workplace. There are various designs of parental leave policies, depending on a combination of factors, such as length, income replacement rate and the compulsory nature of leave. This article draws on data from the 16th International Review of Leave Policies and Related Research (2020) and analyses main features of parental leave policies in seven countries (Germany, Poland, Portugal, Sweden, Israel, Japan and the United States), confronting it with recent research on the use of parental leave in those countries. Subsequently, the article provides evidence for the benefits of fathers’ uptake of paternity and parental leave and points out three features that leave policies must incorporate to promote gender equality and notes the importance of employers’ self-regulation.

EFFECTS OF SOCIO-ECONOMIC FACTORS ON GOVERNMENTAL TAX EXPENDITURES FOR PRIVATE PENSIONS IN SELECTED OECD COUNTRIES

With the advent of an aging society all over the world, there has been a growing policy interest in the pension system that can guarantee old-age income at some level. Many countries also encourage people to join public pensions as well as private pensions. As a result, there has been a phenomenon of substituting private pensions. This study investigates the effects of various socio-economic factors on tax benefits for private pensions at the country level. The results of this study show that lower total income replacement rate of public pension and private pension assets leads to increasing tax expenditures on private pensions. And also, higher individual tax burden and governmental social welfare expenditure causes to increase tax expenditures on private pensions. Despite differences in the type of old-age income security systems by country, it is recognized that attempts to resolve the public pensions crisis caused by socio-economic changes take the form of expanding the roles of private pensions. So, this study provides politic implications that lower benefits from public pensions lead to expanded roles of private pensions supported by the government.

How Much Should the Poor Save for Retirement? Data and Simulations on Retirement Income Adequacy Among Low-Earning Households

Both policymakers and members of the public are concerned regarding the adequacy of U.S. households’ retirement savings. In response, proposals have been made to expand Social Security benefits and to establish state government-run retirement plans for private sector employees. In both cases, the largest effects would be on low-earning households, who currently have low rates of retirement plan coverage and participation and who rely heavily upon Social Security benefits in retirement. However, there has been little systematic analysis of the retirement saving needs of low-earning households other to point out that they currently save little. But this leaves open the possibility that low savings are appropriate given Social Security’s progressive benefits. I explore these questions in two ways. First, I present a variety of data on the retirement saving and retirement incomes of low-earning households. While these households save little, their retirement incomes have risen steadily over the past decades and their poverty rates dropped significantly, seemingly as a result of rising real Social Security benefits. Low-income retiree express less satisfaction with the adequacy of their retirement incomes than other retirees, but their self-assessed retirement income adequacy has increased in recent years. Second, I present a simple model to calculate the household wealth and saving rates necessary for stylized earners to achieve income-specific retirement income replacement rate targets, net of scheduled Social Security benefits. For very low earners, roughly the poorest quintile of the earning distribution, little savings are necessary on top of Social Security. For earners above that level saving requirements increase, but are likely achievable so long as an earner has access to a retirement plan and participates in it.

The Dynamism of the New Economy: Non-Standard Employment and Access to Social Security in EU-28

This paper examines the prevalence of non-standard workers in EU-28, rules for accessing social security, and these workers’ risk of not being able to access it. It focuses on temporary and part-time workers, and the self-employed, and offers a particularly detailed analysis of their access to unemployment benefits. It focuses on eligibility, adequacy (net income replacement rates) and identifies those workers which are at the greatest risk of either not receiving benefits or receiving low benefits. It offers a special overview of foreign non-standard workers, who may be particularly vulnerable due to the absence of citizenship in the host country. The paper also analyses access to maternity and sickness benefits for these three groups of workers, as well as their access to pensions. Its key contribution is in bringing together the different dimensions of disadvantage that non-standard workers face vis-a-vis access to social protection. This allows us to comprehensively assess the adaptation of national social security systems across EU-28 to the changing world of work over the past 10 years. The paper shows that there is a lot of variation between the Member States, both in the structure of their social security systems, as well as the prevalence of non-standard work. Most notably, the paper concludes that: i) access to unemployment benefits is the most challenging component of welfare state provision for people in non-standard employment; ii) policy reforms vis-a-vis access to social benefits have improved the status of non-standard workers in several countries, while they have worsened it in others, particularly in Bulgaria, Ireland and Latvia; iii) some Eastern European countries can offer lessons to other Member States due to their experiences with labour market challenges during transition and the subsequent adaptations of their social security systems to greater labour market flexibility. The paper also implies that a country’s policy towards non- standard work cannot be examined in isolation from its labour market conditions, as well as its growth model, and that uniform policy solutions for non-standard work cannot be applied across EU-28.

The political economy of social assistance and minimum income benefits: a comparative analysis across 26 OECD countries

Social assistance benefit schemes are a peculiar type of welfare state program. As the electoral costs are relatively low, this program forms an obvious target for cost reduction in times of austerity. The aim of this study is to examine the determinants of the developments in social assistance benefits. We seek to make two contributions. First, this paper provides insight into the role of economic, political, and institutional determinants of the variation in social assistance benefits. Second, cross-national data on social expenditures and income replacement rates are available for several welfare state programs, but not for social assistance benefits. Presenting minimum income benefit replacement rates, this study analyzes the developments of social assistance benefits across 26 OECD countries over the past two decades. The analysis leads to the conclusion that budgetary pressure stemming from increased exposure to international trade and soaring levels of unemployment is associated with benefit cuts.

Estimation of Public and Private Pension Income Replacement Rate and Appropriate Measures of Old-age Income Sources

Estimation of Public and Private Pension Income Replacement Rate and Appropriate Measures of Old-age Income Sources

The Life Cycle Model, Replacement Rates, and Retirement Income Adequacy

The key insight of the life cycle model in economics is that a household’s consumption at any given time is determined not so much by its current income as by the total income available to the household over its lifetime. A replacement rate can be a useful tool in approximating the life cycle model’s predictions for how households prepare for retirement. The Social Security Administration’s Office of the Chief Actuary (SSA OACT) publishes two different calculations of retirement income replacement rates, each of which finds that Social Security benefits replace about 40% of a typical retiree’s pre-retirement earnings. Some interpret these figures as indicating that Social Security benefits are insufficiently generous and that U.S. households’ total retirement saving is inadequate. But SSA OACT’s two methods for calculating replacement rates both violate the life cycle model in a meaningful way. SSA OACT’s career-average earnings replacement rates, in which lifetime earnings are first indexed upward by the rate of economywide wage growth, exaggerates by roughly one-fifth the real value of earnings available to a household for consumption over its lifetime. This overstatement lowers a household’s measured ability to replace their pre-retirement earnings. SSA OACT’s final-earnings replacement rates effectively compare Social Security retirement benefits to pre-retirement earnings only in the years in which the individual worked, ignoring the life cycle model’s prediction that household consumption is a function of long-term average earnings, including years in which a household member was not employed. A replacement-rate calculation more consistent with the life cycle model would compare retirement income to an average of real earnings calculated over a significant number of years. Such an approach would find substantially higher replacement rates for the typical retiree. It is important both for Social Security policy and the analysis of overall retirement savings adequacy that replacement-rate calculations build on the insights of the life cycle model that guides most economic analysis of retirement saving.

Social Assistance and Minimum Income Levels and Replacement Rates Dataset

The Social Assistance and Minimum Income Levels and Replacement Rates Dataset provides two new indicators for comparisons of social assistance and minimum income benefits across countries and over time, namely real net minimum income benefit levels and net minimum income benefit replacement rates. The dataset contains information for 33 countries for the period 1990–2009. For information on social assistance and minimum income benefits, the dataset draws upon information from Nelson’s (2013) dataset. The minimum income replacement rates are comparable to unemployment replacement rates.

Social Assistance and Minimum Income Benefits: Benefit Levels, Replacement Rates and Policies across 26 Oecd Countries, 1990–2009

Until recently, social assistance and minimum income benefits have received relatively little attention in the comparative welfare state literature. Relying on two new indicators, this paper examines the development of minimum income benefits across 26 EU and other OECD countries. The real benefit level, the first indicator, is relatively easy to interpret, but international comparisons require adjustments for exchange rates and purchasing power, which can introduce variation that is not related to underlying policy changes. In the second indicator, the net minimum income replacement rate, this disadvantage is cancelled out by construction. Our analysis shows that real benefit levels increased in most countries, whilst replacement rates declined on average. A subsequent qualitative analysis of the changes in the benefit levels confirms that the increased benefit levels reflect policy changes and that the lower replacement rates do not reflect benefit cuts, but relatively larger wage increases. Such a widening gap between benefit levels and wages is in line with the policy agenda of ‘making work pay’. Finally, by analysing the extent to which changes in quantitative indicators reflect actual policy changes, this paper seeks to make a methodological contribution to the ongoing debate on the ‘dependent variable problem’ in the welfare state literature.

PhD Thesis: Trends in Social Assistance, Minimum Income Benefits and Income Polarization in an International Perspective

This thesis collects six empirical studies regarding the developments of social assistance benefits, their determinants and the impact of the benefit changes on income polarization. The first study suggests that the real minimum income benefit levels increased in many OECD countries whilst minimum income replacement rates declined on average. The increased benefit levels reflect policy changes while the declined replacement rates do not reflect benefit cuts but larger wage increases. The second study shows that globalization, soaring levels of unemployment and trade unions have triggered social assistance and minimum income benefit reforms. The third study indicates that the Lisbon Strategy has been positively associated with minimum income benefit developments since 2005. The findings in the fourth study suggest that in China, minimum income benefit programs vary considerably across regions and the benefit generosity has been increasing over the decade although still at low levels in an international perspective. The fifth and sixth studies focus on the indicator of income polarization to analyze income distribution. The fifth study shows that income polarization is stable in European countries and Europe as a whole. The sixth study further indicates that tax-benefit systems are essential in reducing initial market income polarization.

Social Security Retirement Income Replacement Rates

One of the main retirement income concerns is adequacy, which is generally measured as the percentage of preretirement income replaced by the retirement benefit. For defined-benefit pension plans the replacement rate or ratio is measured against some measure of final income. For Social Security (more accurately OASDI), however, the Social Security Administration uses a complex measure of career-average earnings. Since Social Security is the main, and often the only, source of retirement income for many millions of Americans, the question of adequacy is paramount. The benefit formula is heavily skewed in favor of lifetime low-income earners. In addition, Supplemental Security Income (SSI) and state augmentations add to the retirement income of low-income claimants. The combination of OASDI and SSI benefits result in retirement income that, while not overly generous, is adequate. This article examines the origins and development of OASDI and SSI with a focus on benefit adequacy.