Lifetime Pension Research Articles

A Policy Proposal to Strengthen the Income Redistribution Function of the National Pension Scheme in South Korea: An Analysis of South Korea’s 5th National Pension Comprehensive Plan (Draft)

In this study, we elucidate the income redistribution effects of the proposal to incorporate the Bend Points mechanism of the U.S. OASDI into the Korean National Pension Scheme (BP-KNPS Proposal) through a micro-simulation analysis using individual data from the Korean Labor and Income Panel Study (KLIPS). In addition to examining the effects of introducing the BP-KNPS Proposal into the current National Pension Scheme (NPS), we also consider the impact of this scheme being combined with the 5th National Pension Comprehensive Plan (Draft), announced by Korea’s Ministry of Health and Welfare on 30 October 2023. When the BP-KNPS Proposal is introduced into the current NPS, the Mean Log Deviation (MLD) of the net transfer amount (lifetime pension benefits minus lifetime pension contributions) for regular employees decreases from 0.2022863 to 0.1929960. Similarly, the MLD for self-employed and irregular workers decreases from 0.2046127 to 0.1721433, indicating a reduction in income inequality. Furthermore, when the BP-KNPS Proposal is combined with the 5th National Pension Comprehensive Plan (Draft), the effects are mixed. The proposals to increase the pension contribution rate and adjust the rate increase speed via generation lead to a reduction in income inequality compared to the current NPS when combined with the BP-KNPS Proposal. However, the proposals to raise the pensionable age result in increased income inequality, similar to the outcomes under the current system. This finding suggests that the triple burden identified by literature review—the reduction in benefits due to disparities in contribution periods and life expectancy, and the raised pensionable age—has a greater impact on low-income participants than the inequality-reducing effects of the BP-KNPS Proposal.

Benefit volatility-targeting strategies in lifetime pension pools

Lifetime pension pools—also known as group self-annuitization plans, pooled annuity funds, and retirement tontines in the literature—allow retirees to convert a lump sum into lifelong income, with payouts linked to investment performance and the collective mortality experience of the pool. Existing literature on these pools has predominantly examined basic investment strategies like constant allocations and investments solely in risk-free assets. Recent studies, however, proposed volatility targeting, aiming to enhance risk-adjusted returns and minimize downside risk. Yet they only considered investment risk in the volatility target, neglecting the impact of mortality risk on the strategy. This study thus aims to address this gap by investigating volatility-targeting strategies for both investment and mortality risks, offering a solution that keeps the risk associated with benefit variation as constant as possible through time. Specifically, we derive a new asset allocation strategy that targets both investment and mortality risks, and we provide insights about it. Practical investigations of the strategy demonstrate the effectiveness and robustness of the new dynamic volatility-targeting approach, ultimately leading to enhanced lifetime pension benefits.

Fair Pension Policies with Occupation-Specific Ageing

Abstract We study the optimal design of a fair public pension system in a multi-period overlapping generations model with occupation-specific morbidity and mortality that depends on the retirement age. The fairness constraint acts as institutional device ensuring that lifetime returns to contributions are equal across occupational groups. We consider group-specific replacement rates and a calculatory interest rate for early contributions as policy instruments. Calibrating the model to Germany, we find that the transition to optimal fair pension policies may induce early retirement of blue-collar workers and significantly raises their lifetime pension benefits and welfare. Aggregate welfare increases in all fair pension scenarios.

The Inequality of Lifetime Pensions

The Inequality of Lifetime Pensions

Practical Applications of The Trouble with State Government Employee Pension Plans: The Case of Connecticut

In <b><i>The Trouble with State Government Employee Pension Plans: The Case of Connecticut</i></b>, from the Winter 2022 issue of <b><i>The Journal of Retirement</i></b>, author <b>Mark J. Warshawsky</b> of the <b>American Enterprise Institute</b> explores threats to the financial viability of state- and municipal-employee pension plans. Unlike the private sector, most public-sector employers still offer defined-benefit (DB) lifetime pensions to employees. However, many of these pensions are seriously underfunded. That threatens the retirement income security of public employees and puts taxpayers at risk of having to pay for bailouts. The author pinpoints several factors contributing to this problem. Most significantly, states and municipalities have contributed too little to their DB plans and have made optimistic assumptions about future investment returns. Using the State of Connecticut’s DB plans as a case study, the author finds they have tried to address these problems by extending amortization periods to pay off liabilities. The author tests these measures and finds that the Connecticut plans are still overly optimistic and at risk of shortfalls. He therefore suggests that the federal government regulate public-employee DB plans and that Connecticut close its DB plans and offer defined-contribution (DC) plans instead.

Review: In Pursuit of Utopia: Los Angeles in the Great Depression, by Errol Wayne Stevens

Historians of Los Angeles and Southern California have long observed that the region was an extraordinary place during the 1920s and 1930s. The region’s population and economy grew at a phenomenal rate. Evangelists called new arrivals to megachurches created by Hollywood set designers. Hundreds of thousands of Iowans flocked to annual picnics in Long Beach to celebrate their midwestern roots. Hucksters sold stocks for sham companies on the streets of downtown Los Angeles. As the Depression took hold and regional economic prospects spiraled downward, seemingly equally strange proposals and movements to solve the economic crisis and its corollary human suffering emerged and gained popularity, from the Ham and Eggs pension movement to Upton Sinclair’s gubernatorial campaign.In this carefully researched and thoughtfully written book, Errol Stevens asks the familiar question of why Los Angeles saw so many radical movements take hold in the 1930s. Over ten readable chapters, he rejects the common argument that Angelenos, many of them new migrants from the Midwest, naively fell for the impractical schemes of radicals and con artists. Instead, Stevens argues that Southern Californians, many of them desperate for feasible solutions to their abysmal economic situations, were willing to consider creative, even unusual, social and economic proposals to address personal and regional economic woes.As Stevens narrates, these programs and proposals varied widely. They included widespread agricultural self-help cooperatives that grew and distributed foodstuffs to thousands of members and those in need from Compton to El Monte. The Communist Party built a dedicated membership from its headquarters in Boyle Heights and in defiance of the Los Angeles Police Department’s “Red Squad.” Members of the newly formed Utopian Society advocated for a radical rethinking of the nation’s economic structure, a transformation that they believed could come about without revolution and would restore a solid middle class. Physician Francis E. Townsend proposed a wildly popular program of universal lifetime pensions of $150 a month for those over sixty or unemployed with the one stipulation that the money be spent in its entirety by the end of each month in order to stimulate the economy and end the Depression. At the urging of some prominent California Democrats, Sinclair, a longtime socialist, changed his party affiliation and announced his campaign for governor. His campaign, known as End Poverty in California (EPIC), organized over two thousand clubs across the state and helped add 350,000 new registered Democrats to the state’s voter rolls. Sinclair enjoyed tremendous popularity but state conservatives waged “one of the dirtiest campaigns in California history” against him and his Republican opponent won (p. 168).Ultimately, In Pursuit of Utopia explores why California’s “aging, churchgoing, largely conservative, midwestern” population flocked to “movements that advocated programs that would change the very nature of the capitalist system” (p. 197). Stevens finds that the region’s older midwestern transplant population turned to long-established midwestern agricultural traditions of communalism to make ends meet. They also responded to the real threats of homelessness and starvation, a complete absence of a federal social safety net, and the refusal of local officials to provide adequate relief by supporting novel and innovative proposals. As Stevens observes, “thousands of Southern Californians rushed to support these movements because there were no alternatives…in retrospect, it is clear that they were not pursuing utopia, just trying to survive” (p. 200).A historian and an archivist, Stevens spent the final two decades of his career as the director of the Department of Archives and Special Collections at Loyola Marymount University. While there, he also administered the Center for the Study of Los Angeles Research Collection. His training as an archivist is evident in this deeply researched and carefully sourced book. Sadly, the community of Los Angeles archivists and historians lost Stevens in 2020, but his contributions to the field live on in this finely researched and written book and in his stewardship of regional archival materials.

How Does Mortality Contribute to Lifetime Pension Inequality? Evidence From Five Decades of Swedish Taxation Data.

As with many social transfer schemes, pension systems around the world are often progressive: individuals with lower incomes receive a higher percentage of their income as a subsequent pension. On the other hand, those with lower earnings have higher mortality and thus accumulate fewer years of pension income. Both of these opposing factors influence the progressiveness of pension systems. Empirical efforts to disentangle the effects of mortality inequality on lifetime pension inequality have been scarce. Using Swedish taxation data linked with death registers for 1970-2018, we study how education and preretirement earnings relate to lifetime pensions from age 60 onward and how mortality inequalities contribute to overall inequalities in lifetime pensions. The results show that a progressive replacement structure and mortality differences contribute to the overall distribution of pension payments over the life course. Up to one quarter of lifetime pension inequality is attributable to the greater longevity of socially advantaged groups-particularly among men. Hence, mortality inequalities are an important determinant of the overall degree of between-group income transfers in a pension system, but they are not as important as inequalities in prior earnings.

Workforce Aging, Pension Reforms, and Firm Outcomes

This paper quantifies the effect of a policy-induced sharp increase in retirement ages on input mix and economic outcomes of firms using Italian matched worker-firm data. Data on lifetime pension contributions are used to calculate the expected additional number of older workers employed by each firm due to the reform. Resulting instrumental variable estimates show an increase in older workers leads to a precisely estimated rise in employment of younger workers, value added, and total labor costs at constant labor productivity and unit labor costs. The findings suggest rising institutional retirement ages can help firms to retain valuable older employees.

“Nada sobre nós sem nós”: associativismo, deficiência e pesquisa científica na Síndrome Congênita do Zika vírus.

Neste artigo discutimos as relações entre ciência/pesquisa e associativismo na Síndrome Congênita do Zika Vírus (SCZV). De início focamos no surgimento das principais associações de SCZV do Brasil e da Frente Nacional por Direitos da Pessoa com a Síndrome Congênita do Zika Vírus (FNDPSCZV). Em seguida debatemos sobre duas demandas da Frente: (1) as discussões sobre ética em pesquisa com seres humanos e a (2) pensão vitalícia para as crianças com SCZV e como este tema se relaciona com a pesquisa científica. Concluímos que as associações tem buscado relação mais horizontal com a ciência, ora denunciando sua falta de empatia e ética, ora fazendo uso dela. Para tanto, as associações têm buscado junto a comunidade científica espaços de diálogo no qual possam ser ouvidas e respeitadas quanto aos usos e resultados das pesquisas científicas em seus filhos através do lema “nada sobre nós sem nós”.

State-Sponsored Pensions for Private Sector Workers: The Case for Pooled Annuities and Tontines

This paper explains how state governments could create new low-cost lifetime assurance funds to help provide retirement income security for millions of private-sector workers who currently lack pension coverage. Basically, an assurance fund operates like a mutual fund held within a defined contribution plan, but with the added features of mortality pooling and fully-funded lifetime payouts. As we envision them, assurance funds would be offered as annuity-like investment options on the new investment platforms being created by states like Oregon, California, and Maryland that offer their citizens the opportunity to participate in state-sponsored retirement savings plans. Adding an assurance fund could effectively turn these retirement savings plans into lifetime pensions. To ensure their sustainability, assurance funds would operate under a strict budget constraint and be organized as either tontines or pooled annuities.

Career breaks, broken pensions? Long-run effects of early and late-career unemployment spells on pension entitlements

AbstractUnemployment periods and other career breaks have long-term scarring effects on future labour market possibilities, permanently affecting workers' retirement income and standard of living as pensioners. Previous literature has focused on the impact of job loss on working careers with little attention to its impact on pension wealth, particularly the extent to which longevity heterogeneity amplifies unemployment scars. This paper investigates the effect of single and multiple unemployment spells on the lifetime pension entitlements of earnings-related contributory pension schemes, considering the timing and duration of breaks, alternative lifecycle labour earnings profiles, scarring and restoration effects on labour market re-entry, the existence of pension credits and pension accruals for periods spent outside the labour market, longevity heterogeneity, and the accumulation and decumulation redistributive features of the pension scheme. Pension entitlements are estimated using a backward-looking simulation approach based on the actual Portuguese public pension system rules and stylized labour market profiles identified in the SHARE Job Episodes Panel data using a sequence analysis. Longevity heterogeneity is modelled using a stochastic mortality model with a frailty model. Our results show that the timing and duration of unemployment periods is critical, that scarring effects amplify pension wealth losses, that minimum pension provisions, pension credits and pension scheme redistributive features can partially mitigate the impact of unemployment periods on future entitlements, and that the presence of positive correlation between lifetime income and longevity career breaks can amplify the asymmetry in the distribution of pension entitlements across income groups.

Practical Applications of The Unrealistic Optimism That Threatens Retirement Security

<h3>Practical Applications Summary</h3> In <b><i>The Unrealistic Optimism That Threatens Retirement Security</i></b>, from the Fall 2019 issue of <b><i>The Journal of Retirement</i></b>, author <b>Alfred Rappaport</b> of <b>Northwestern University</b> details the retirement crisis facing Americans today. Fewer employers are offering lifetime pensions, and nearly half of American families have no retirement savings—but most Americans believe they are on track to a comfortable retirement. This unrealistic optimism comes from the fact that Americans underestimate their expenses in retirement while overestimating how much their investments will grow once they start saving. Investors often assume they will realize high rates of return in line with historical growth rates. However, they often sabotage their retirement nest egg’s potential by failing to reinvest dividends, and by investing when the market is high and selling when the market is low. Investors also often fail to factor in investment fees, inflation, and taxes. The author gives investors a reality check, providing tools that show how these factors cut into retirement savings over time. Financial advisors can use these tools to educate their clients and create retirement savings plans that are free of unrealistic optimism. <b>TOPICS:</b>Wealth management, retirement, pension funds, portfolio theory

Saving for retirement: rules of thumb

Abstract Rules of thumb (RoTs) are proposed as a means of promoting higher levels of Defined Contribution (DC) pension saving and to help stimulate debate about the high and uncertain cost of pension provision, leading to the development of solutions. The Lifetime Pension Contribution (LPC) tells young people what pension contribution is required over a full working life to achieve a decent retirement income, calculated as 23% of average UK earnings. Another RoT is that each 1% of earnings provides a pension of 1.5% of earnings. Other RoTs show how costs vary by retirement age and if the saverʼs retirement planning is on track. The current high cost of pensions is partly due to low interest rates and the inefficiencies of the DC market, with inadequate bulk purchasing power and risk sharing. RoTs might help encourage higher employer contributions, either through automatic enrolment or on a voluntary basis.

Spillovers from State and Local Pensions to Social Security: Do Benefits for Uncovered Workers Meet Federal Standards?

Federal law allows certain state and local government employees to be excluded from Social Security coverage if they are covered by an employer pension of sufficient generosity. Public sector retirement systems have grown less generous in recent years, and a couple of plans could exhaust their assets in the next decade, putting benefits at risk. If pension sponsors are inattentive to federal generosity requirements when cutting benefits, current and future initiatives to curb costs may conflict with their obligations to the U.S. Social Security Administration (SSA). This project combines data from a variety of sources to assess whether state and local governments are currently satisfying the federal standards and whether the standards continue to provide benefits of equal generosity to Social Security. The paper found that: -Although public plans satisfy the regulations, uncovered state and local government employees do not always receive Social Security-equivalent resources in retirement because the law regulates benefits only at age 67 (rather than lifetime benefits) and allows for long vesting periods. -State and local pensions often set very long vesting periods and are increasingly unlikely to grant full cost-of-living adjustments (COLA) after retirement. Yet, they also allow members to collect full benefits at much younger ages than Social Security. Incorporating vesting, the COLA, and the normal retirement age into a generosity test based on lifetime pension wealth shows that some plans fall short, but this finding is very sensitive to the employment patterns of the uncovered employees. -Additionally, a couple of plans that exclude their members from Social Security could soon exhaust the assets in their trust funds and revert to pay-as-you-go systems, endangering future benefits and putting them in violation of federal generosity standards. The policy implications of the findings are: -Federal generosity standards for state and local pensions could be updated to ensure Social Security-equivalent protections. -Over time, mandatory enrollment of state and local government employees in Social Security would obviate the need for federal monitoring of their pensions.

Fiscal and Welfare Effects of Balanced-budget Reforms of Korea’s National Pension System

ABSTRACTThis paper evaluates the fiscal sustainability of the benchmark pension system in Korea, which will come into effect in 2028 following the 2007 pension reforms, and the welfare effects of pension reforms aimed at a balanced budget over the life cycle. To this end, we measure the lifetime pension deficit, i.e. the difference between total pension benefits and total pension contributions in an individual’s lifetime. We find that the benchmark pension system is expected to run an average lifetime deficit of 22.36 million won (approximately $22,360), and the current pension fund is unlikely to finance the sum of future deficits. The optimal pension reform for the zero average lifetime deficit reduces social welfare by as much as a 2.06% fall in consumption and is characterised with the contribution rate of 20.3% and an average replacement rate of 66.4%. These values are much higher than the respective benchmark values, 9% and 40%, because the increase in pension benefits, combined with the increase in pension contributions, can reduce the income inequality due to the progressivity of pension benefits and the proportionality of pension contributions.

Who wins? Evaluating the impact of UK public sector pension scheme reforms

Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10–20 per cent. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes lose between 3 per cent and 5 per cent. This is in sharp contrast with the Police and Fire services who have lost around 40 per cent irrespective of their education.

The Influence of the Sharpe Ratio on Appreciation Savings Intended for the Payment of Lifetime Pensions

The paper focuses on the payment of lifetime pensions paid by pension companies based on the selected mortality table of the Czech Statistical Office. We assume different input values depending on the size of the Sharpe ratio pension companies from selected countries. This paper aims to identify and assess the impact of the Sharpe ratio on the payment of lifetime pensions in postproduction period. We used data of nominal appreciation of pension companies from the Visegrad countries and Sweden, Switzerland and the Netherlands in the period 2005–2013. In the empirical analysis we additionally distinguished between guaranteed and non-guaranteed pension funds. For the purpose of calculating lifetime pensions, we used the formula early paid pension by the pension company on the Czech market down in its her pension plan with an expected median payment period of r years. We found link between the value of the Sharpe ratio and the size of lifetime pensions. Conclusion of the paper shows the effects of low performance of pension funds on lifetime pension with a focus on the Czech Republic. The scientific paper describes partial results reached within the project no. 54/2014 of the Internal Grant Agency of the Faculty of Business and Economics of the Mendel University in Brno following the aims and methodology of the given project.

The Influence of the Sharpe Ratio on Appreciation Savings Intended for the Payment of Lifetime Pensions

The Influence of the Sharpe Ratio on Appreciation Savings Intended for the Payment of Lifetime Pensions

Altruistic motives, uncertain lifetime and urban public pension replacement rates

This article employs an overlapping generations model with altruistic motives and uncertain lifetime to investigate China's urban public pension system. We examine the effects of the individual account benefit replacement rate, social pool benefit replacement rate, life expectancy and population growth rate on the capital-labour ratio, pension benefits, consumption and utility. We also find the optimal social pool benefit replacement rate. Raising the individual account benefit replacement rate only increases the individual account benefits. Raising the social pool benefit replacement rate increases the social pool benefits and retirement-period consumption, whereas decreases the capital-labour ratio, individual account benefits, working-period consumption and utility. The fall in the population growth rate increases the capital-labour ratio, social pool benefits, individual account benefits, working-period consumption and utility, whereas decreases the retirement-period consumption. The rise in the life expectancy decreases the six variables. The optimal social pool benefit replacement rate falls in case of either risen life expectancy or fallen population growth rate. It further falls under the joint case of risen life expectancy and fallen population growth rate. It will do more good than harm to raise the individual account benefit replacement rate, reduce the social pool benefit replacement rate and strictly implement the population policy.

Stochastic pension funding when the benefit and the risky asset follow jump diffusion processes

We study the asset allocation of defined benefit pension plans of the type designed and sponsored by firms with the aim of providing a lifetime pension to the employees at the age of retirement. Benefits are stochastic, combining Poisson jumps with Brownian uncertainty. The sponsor dynamically forms portfolios where the risky asset is also subjected to Poisson jumps and Brownian uncertainty, possibly correlated with the evolution of benefits. The objective is to assure future benefits, while controlling the contribution made to the fund reserves. The problem is solved analytically using dynamic programming techniques.