Pension Decisions Research Articles

Long-Range Planning Attitude in a Declining Welfare: When Individual Behaviours Inhibit Retirement Voluntary Plans

Declining welfare systems increase the importance of self-determination in pension decisions. Thus, the stability of long-life consumptions markedly relies on the individual longrange planning attitude. Our paper investigates how behavioural components affect this attitude, by observing in which conditions individuals hold voluntary integrative pension schemes (VIPS). We find that psychological and psycho-physiological heterogeneity, together with saving/indebtedness behaviours, plays a relevant role in predicting the demand for VIPS, taking socio-demographical variables under control. Subjects with high degree of impulsivity, precisely a non-planning impulsiveness, and with high emotional arousal, in terms of somatic response to events, are less likely to demand for VIPS. Our results implicate that behavioural features might bring individuals to lack integrative resources able to maintain stable lifestyles in the long-range.

Calculando la vejez: gestión previsional en trabajadores/as de bajos ingresos

The Chilean pension system is a milestone regarding the institutionalization of individual responsibility and individual decisions as determinant of the pension performance. Few assessments have been made, however, to how people make decisions in this system. From a qualitative study, the following article explores how low-income workers living in Santiago make their pension decisions. Using recent perspectives in economic sociology, the article provides a dynamic interpretation of the possibilities of social agency in a complex and novel scenario, focusing on the construction of calculability frameworks that permit to make decisions and the structural and institutional elements that condition them. The last ones overflow the constructed frameworks and make necessary reframing processes through which the pension management intermingles with strategies for the generation of current incomes.

Optimal Corporate Pension Policy for Defined Benefit Plans in the Presence of PBGC Insurance

This paper develops a general continuous-time framework for defining the optimal corporate pension policy for defined benefit (DB) plans in the presence of PBGC insurance. Interactions between the firm's optimal investment and financing policies and the optimal portfolio strategy for DB plans are studied. In normal, non-distressed times, the optimal pension portfolio rule from the equityholders' ’perspective is acceptable to both the participants and PBGC. However, this is no longer the case when the firm approaches financial distress. The PBGC put then emerges in the consolidated balance sheet, and the firm's optimal portfolio behavior becomes more aggressive. We recommend that the PBGC obtain a control right on pension decisions made by sponsoring companies near distress.

‘I Might not Live That Long!’ A Study of Young Women's Pension Planning in the UK

AbstractThere has been considerable concern about levels of pension saving especially given increases in longevity and rising pension deficits. In particular, the prospects of many future female pensioners have been questioned. As pensions are determined by contributions throughout the life course it is imperative to comprehend the attitudes, knowledge, expectations and savings habits of people from an early age to explore why under‐saving occurs. This is particularly pertinent given recent governments' emphasis on individual responsibility for financial provision in retirement. However, there is little research which focuses specifically on young women's attitudes or planning towards pensions despite considerable concern about the future of women's pensions. This article considers young women's (18–30) attitudes towards pensions and whether they differ according to socio‐economic status by using interviews with 15 women (five in routine and manual occupations, five intermediate, five professional and managerial) about how knowledge and choice, trust, responsibility, risk and uncertainty impact on their pension decisions. It is evident that the ability and willingness of people to contribute to a pension depends, among other things, on the pension offered by employers, the pension requirements in place and immediate financial needs. Therefore this article shows that pension policy needs to take into account women's employment histories, which are often fragmented and diverse, when considering young women's attitudes towards pension saving.

Do you look forward to retirement? Motivational biases in pension decisions

AbstractThis research examines the relationship between positive and negative perceptions of pensions and motivation to engage in the decision process of choosing a private pension plan, as well as satisfaction from the chosen pension plan, among trained economists. A sample of 134 economists completed a self-report survey examining the decision process of different decision contexts in life, including pension decisions. Overall, participants showed low motivation to engage in the process of choosing a private pension plan, compared to their motivation to engage in other decision tasks. However, economists invested more in the decision process and showed greater satisfaction from their decision regarding their pension plan when they had a more positive perception of pensions. This perception is represented by higher subjective likelihood of receiving pension allowances for a long period, and by a profitable view of the balance between current payments and expected incomes from pension saving.

Calculando la vejez: gestión previsional en trabajadores/as de bajos ingresos

The Chilean pension system is a milestone regarding the institutionalization of individual responsibility and individual decisions as determinant of the pension performance. Few assessments have been made, however, to how people make decisions in this system. From a qualitative study, the following article explores how low-income workers living in Santiago make their pension decisions. Using recent perspectives in economic sociology, the article provides a dynamic interpretation of the possibilities of social agency in a complex and novel scenario, focusing on the construction of calculability frameworks that permit to make decisions and the structural and institutional elements that condition them. The last ones overflow the constructed frameworks and make necessary reframing processes through which the pension management intermingles with strategies for the generation of current incomes.

Managerial Risk-Taking Incentives and Corporate Pension Policy

Theory predicts that stockholders of firms with defined-benefit pension plans will engage in risk-shifting by underfunding plans and investing plan assets in risky securities, as their firms approach distress. The empirical evidence so far has, however, been consistent more with risk-management than risk-shifting. We test whether the compensation incentives of top management affect the extent of risk-shifting versus risk-management behavior in pension plans. We find that risk-shifting through pension underfunding is stronger with compensation structures that create high wealth-risk sensitivity (vega), and weaker with high wealth-price sensitivity (delta). These relationships hold across firms and within firms and managers over time. We find consistent but weaker results with risk-shifting through pension asset allocation to risky securities. While both CEO and CFO incentives affect pension strategy, CFO incentives dominate, suggesting that pension decisions fall within the CFO’s domain. We find also that risk-shifting through pension underfunding is lower when CFOs’ own pensions are larger. Overall, these findings show that top managers’ compensation structure is an important driver of corporate pension policy; they also highlight firms within which the moral hazard concerns fueled by Pension Benefit Guaranty Corporation insurance are most relevant.

Do Economic Policymakers Practice What They Preach? The Case of Pension Decisions

This paper examines whether policymakers, economists at the Israeli Finance Ministry, act in their personal pension decisions in accordance with the rational behaviour assumptions underlying the pension policies they advance. We find that while economists' decisions regarding three other important decisions such as buying an apartment, a car and a large appliance, are largely in line with rational models, pension decisions deviate significantly from these models. A large share of these policymakers hardly search for relevant information regarding their chosen pension fund, do not know the most necessary information and consider only one option before choosing the preferred pension fund. A significant difference was found between specialized policymakers (economists in the Pension Division) and general policymakers (economists in all other Divisions) showing that specialized policymakers are significantly less biased.

The Policyholder's Static and Dynamic Decision Making of Life Insurance and Pension Payments

We deal with the introduction of life insurance and pension decisions in the personal financial problem of optimal lifetime consumption of lifetime income. We introduce in Section 2 the classical notion of reserves and present well-known differential equations characterizing these. We start with the survival model and discuss also the case where pension saving takes place in a bank. We then analyze the disability model and the multi-state model that are generalizations of the survival model. This structure is repeated in all sections of the paper. In Section 3 we introduce the notion of utility reserves that makes it possible to compare the different contracts offered by the insurance company, and present differential equations characterizing these. The utility reserve is the basis for static optimization of payment streams in Section 4 and for dynamic optimization of payment streams in Section 5. In particular in the case of dynamic optimization, the differential equation characterizing the utility reserve plays a crucial role since the so-called Hamilton-Jacobi-Bellman equation characterizing the optimal solution is based on it. Sections 2-5 are ended by a continued numerical example illustrating our findings for the survival model. We conclude by further remarks on generalizations and applications.

Psychiatric Disability Assessments

<P>Psychiatric disability evaluations or independent medical evaluations (IMEs) are performed for civil forensic purposes to address economic issues, or other concerns with economic consequences, including return to work vs. disability pension decisions, and appropriateness of treatment, safety, and discrimination issues. They are taught infrequently in general psychiatric residency training programs, and they occupy less than a page in standard textbooks of psychiatry. Specialized references contain a more complete examination of these issues.</P> <H4>ABOUT THE AUTHOR</H4> <P>Dr. Williams is in private practice. Address correspondence to C. Donald Williams, MD, CGP, 402 E. Yakima Ave., Suite 330, Yakima, WA 98901, or e-mail <a href="mailto:cdonald@aol.com">cdonald@aol.com</a>. </P><P>The author disclosed no relevant financial relationship.</P>

Analysis by paralysis: the pension purchase decision process

PurposeAttempts to understand the consumer behaviour in the context of the pension purchase process, including the decision process and factors affecting the decision.Design/methodology/approachFocus groups were conducted among manual and clerical grades of employees within a public sector organization who were members of an occupational pension scheme.FindingsDespite the relative importance of pensions and the degree of risk associated with the purchase, the findings clearly indicate that purchasing decisions in this context are neither completely informed nor rational. The process described by focus group participants suggests “analysis by paralysis”, characterized by complexity, confusion and apathy.Research limitations/implicationsSmall number of focus groups and a focus on manual and clerical grades of employment only. A larger sample and representation of other grades of employment might yield differences in decision making between different segments of the population.Practical implicationsProvides useful insights for providers of pensions in understanding the role of information, reference groups and professional advice in the marketing of pensions.Originality/valueAddresses a key concern of government – insufficient pension provision – and helps to understand some of the barriers and challenges facing individuals in making pension decisions.

Worker Preferences, Spousal Coordination, and Participation in an Employer-Sponsored Pension Plan

Recent changes in the pension environment, such as the growth of defined contribution plans, place more responsibility on individuals for the accumulation of retirement resources and provide workers with an increasing array of pension-related choices and decisions. This study uses data from the Health and Retirement Study to examine two instances where workers face such decisions—participation in an offered defined contribution plan and participation in a supplemental pension plan. The author examines the relationship between two largely unexplored predictors of pension participation—psychological motivators of saving and the influence of spouse’s behavior. Individual preferences for planning and risk and measures of spouse’s pension behavior are included in probit models predicting individual pension participation. Results reveal gender differences in the association between preferences and behavior and differences in the primary versus supplemental decision. They also suggest that spouses coordinate pension decisions and behave similarly within structural constraints.

Pension decisions in a changing economy: gender, structure, and choice.

As responsibility for financial security in retirement becomes more individualized, understanding the distribution and determinants of savings behavior grows in importance. Employed men and women often gain access to their pension assets when they change jobs. In this study gender differences in pre-retirement access to and disposition of accumulated pension assets are examined. The authors used data from the Health and Retirement Study to model pension participation, disposition of pension assets, and use of cash settlements derived from a pension plan in a previous job. Logit models provided estimates of gender differences in access to pensions and the preservation of pension funds for retirement. Women were less likely to have participated in employer-sponsored pension plans; more likely to cash out accumulated pension assets when they changed jobs; and, when job changes occurred at relatively young ages, equally likely to spend the settlement. However, by their late 40s, women were more likely to save the settlement, a net gender difference that increased with age at which the settlement was received. The structure of employment compensation continues to place women at a disadvantage. Gender differences in earnings and fringe benefits not only affect current financial status, but also cast a shadow over future financial security. Although the gender gap in pension coverage has been reduced, women with pensions have access to lower benefits and less in accumulated assets. As these continuing deficits are addressed, enhancing women's tendency to save pension assets for retirement can help them build financial security.

Gender differences in defined contribution pension decisions


 
 
 This paper considers gender differences in allocation of household wealth to defined contribution pensions. Using data from the 1989 Survey of Consumer Finances, we estimate the coefficient of relative risk aversion based on the allocation of wealth into defined contribution pensions. Unlike previous studies, we consider the problem in the context of the household’s overall portfolio. We find that women exhibit greater relative risk aversion in their allocation of wealth into defined contribution pension assets. © 1999 Elsevier Science Inc. All rights reserved.
 
 

PENSION SURVIVORS INSURANCE FOR WIDOWS

Men frequently do not provide pension survivors insurance for their wives. To analyze why, a demand‐supply model of survivors insurance is presented. Using the Survey of Private Pension Benefit Amounts, Tobit estimates are calculated for a sample of married male pensioners. Social security reduces the survivors insurance provided through private pensions, partially foiling governmental attempts to reduce poverty among widows. The decline in inflation and the Supreme Court's unisex pension decisions have increased the selection of pension survivors insurance so that an increase could not necessarily be attributed to the passage of the Retirement Equity Act.