Pension Economics Research Articles

Introduction to the 20th Anniversary Special Issue of the Journal of Pension Economics and Finance

Abstract The papers in this 20th Anniversary Special Issue reflect to a large extent how the fields of pension economics and pension finance have developed in the past two decades, although there remain very clear connections to the research published in the Journal's first issue. While there has been great progress in research on pensions and retirement economics over the last 20 years, there remain important outstanding questions for future study.

The economic consequences of GASB financial statement disclosure

We examine whether Governmental Accounting Standards Board (GASB) financial statement disclosure alters local governments' economic decision-making. To do so, we exploit a recent GASB standard that eliminated differences in the disclosure requirements for county governments' pension obligations. The standard, GASB 68, had no effect on pension economics or the annual budget—it affected only whether and how information was presented on GASB financial statements. Using a broad hand-collected dataset, we document that counties that did not disclose information about their pension obligations before GASB 68 reduced public welfare expenditures, employment, and salary expenses relative to those that had disclosed such information. We conduct extensive field research and employ several cross-sectional analyses to conclude that the effects we document are in part driven by increased awareness of the financial costs of pension obligations by newly disclosing counties.

Impact of COVID-19 on Ageing and Retirement System: Key Policy Considerations

The authors attempt to conduct interdisciplinary research in epidemiology demography and pension economics. A literature was selected upon its relevance to the following key words: COVID-19, ageing and retirement system. The following methods are used: Historical content analysis, information, and analytical, comparative analysis. The analysis part is mainly based on secondary data of Committee on Statistics of the Republic of Kazakhstan and world recognized institutions’ reports such as World Health Organization, United Nations and World Bank. In the demographic analysis the traditional and alternative indices of population ageing such as Old Age Dependency Ratio (OADR) and Prospective Old Age Dependency Ratio (POADR) were widely used. By August 5, 2020, Kazakhstan has 94,882 registered cases of CVI, 67031 people recovered and 1058 deaths. Confusion in the demographic statistics of COVID-19 cases showed all the shortcomings. Even though the OADR and POADR ratios are rising in accordance with UN forecast, the global pandemic will adjust the population ageing, since the mortality of the elderly population from this disease is higher than in other age groups. The Kazakhstani retirement system has been suffered by the COVID-19 as well. Human losses, income poverty and increase in pension costs put a burden on state budget. The research presents recommendations on supporting measures in several directions that need to be taken by policy makers during post COVID-19 period in retirement system.

No Country for Old Men? Increasing the Retirement Age in the Norwegian Armed Forces

ABSTRACT Ageing workforces due to low fertility rates and higher life expectancies challenge modern industrialized economies. In order to secure economic welfare and to balance public budgets, governments worldwide implement reforms to increase the retirement age. The trend towards a higher retirement age confronts defense sectors that for centuries have been in search of an age structure characterized by ‘youth and vigor’. In this article, we study the economic gains to society when the special retirement age for military personnel in the Norwegian Armed Forces is increased. Combining the literatures on pension, personnel, and military economics, we identify mechanisms crucial to the outcome of a special retirement age reform. Monte Carlo simulation is applied to illustrate the potential impact on the economic net gains of uncertain variables. We find that an increase in the retirement age provides substantial net benefits to society, even under fairly negative assumptions about the consequences for retention, motivation and efforts, and the value of elderly personnel in the Norwegian Armed Forces.

The Economic Consequences of GASB Financial Statement Disclosure

We examine whether Governmental Accounting Standards Board (GASB) financial statement disclosure influences local governments’ economic decision-making. To do so, we exploit a recent GASB standard that differentially changed the disclosure requirements for pension obligations for county governments. The standard, GASB 68, had no effect on pension economics nor on the annual budget—it only affected whether and how information was presented on GASB financial statements and did so differently depending on the type of pension plan sponsored by the county. Using a broad hand-collected dataset, we document that newly disclosing counties reduced public welfare expenditures, employment, and salary expenses relative to those that had disclosed such information prior to GASB 68. We conduct extensive field research and employ several cross-sectional analyses to conclude that the effects we document are likely driven by increased awareness of the financial costs of pension obligations by newly disclosing counties. More specifically, we find that GASB 68 changed these counties’ perspective of their pension arrangement from a bill (i.e., the county only has to make an annual pension contribution) to a liability (i.e., the county is ultimately responsible for funding the pension deficit), and that this new perspective generated the documented fiscal response.

Financing longevity: The economics of pensions, health, and long-term care: Introduction to the special issue

Financing longevity: The economics of pensions, health, and long-term care: Introduction to the special issue

Who cares about the day after tomorrow? Pension issues when households are myopic or time inconsistent

AbstractPension economics has traditionally guided pension policy with the help of formal models based on individuals who think in a life‐cycle context with perfect foresight, full information, and in a time‐consistent manner. Associated macro models were mostly based on a single country. This paper sheds light on several aspects of pension economics when these assumptions do not hold using—to our knowledge—the first multi‐country model of procrastinating households. Our focus is on the interaction between the share of procrastinators in a country, the speed and extent of population aging, and the size of an existing PAYG‐DB pension system. Starting from the insight that procrastination reduces the volume of savings, we focus on three questions that are particularly relevant for the quickly aging Asian economies: What are the consequences for the balance between pay‐as‐you‐go and fully funded pension systems? Where will retirement savings be invested in a globally linked world with very different pension systems and demographics? How large are global spillover effects of pension reforms in one region for the other regions in the world?

Universal social pension for elderly individuals in India

PurposePopulation ageing, extended coverage of beneficiaries and rise in benefit levels of a public-funded universal social pension scheme (USPS) for elderly individuals may exert fiscal pressures on India’s General Government. Using accounting frameworks, this paper aims at an assessment of public expenditure requirements of USPS scenarios in the short term and their long-term implications for fiscal sustainability.Design/methodology/approachShort-term public expenditure requirements are quantified for the current pension scheme and proposed USPS scenarios, if pension benefits are adjustable for official poverty line, per capita income, the inflation rate and income elasticity of public pension expenditure. Long-term fiscal sustainability is determined by the methodology of generational accounting.FindingsPublic expenditure requirements for the USPS scenarios are remarkably higher as compared to the current expenditure on the Indira Gandhi National Old Age Pension Scheme (IGNOAPS). Short-term analyses offer economic justifications for an increase in pension benefits either by a single adjustment factor or combined adjustment factors but at a cost of remarkable increase in public expenditure requirements. Long-term analyses show that the IGNOAPS and proposed USPS scenarios are fiscally sustainable but sensitive to five parameters (productivity growth, inflation rate, discount rate, income elasticity public pension expenditure and income elasticity of health expenditure). A policy mix of these parameters leads to fiscal sustainability of the IGNOAPS and proposed USPS scenarios with differential impacts on inter-generational distribution of welfare by tax and transfer adjustments.Research limitations/implicationsApplication of the generational accounting methodology is new for India’s pension economics and may have applicability and relevance for future extensions and analyses of other fiscal policy issues. This paper sets a benchmark for such extensions and applications.Practical implicationsThe analyses and implications offer economic justifications for increase in levels of pension benefits by the current pension scheme and proposed USPS scenarios, introduction of sustainable USPS scenarios under current fiscal policies and choice of design parameters for a fiscally sustainable USPS.Social implicationsSocial pensions have implications for providing income security and livelihood benefits for all elderly civilians in society.Originality/valueThe paper adds to the existing knowledge on economic analyses and fiscal implications of India’s old age pension policies in general and social pension policies in particular. Subject to the comparability of socio-economic structures and pension programmes, the methodology and public policy analyses of this paper may be of relevance and applicability for developing countries in Asia.

Longevity Risk and Capital Markets: The 2014–15 Update

Journal of Risk and InsuranceVolume 84, Issue S1 p. 279-297 Introduction Longevity Risk and Capital Markets: The 2014–15 Update David Blake, David Blake d.bl[email protected] Search for more papers by this authorMarco Morales, Marco Morales [email protected] Search for more papers by this author David Blake, David Blake [email protected] Search for more papers by this authorMarco Morales, Marco Morales [email protected] Search for more papers by this author First published: 10 April 2017 https://doi.org/10.1111/jori.12213Citations: 5 David Blake is Professor of Pension Economics and Director of the Pensions Institute, Cass Business School, City University of London. David Blake can be contacted via e-mail: [email protected]. Marco Morales is Associate Professor of Economics at the Universidad Diego Portales. Marco Morales can be contacted via e-mail: [email protected]. David Blake and Richard MacMinn are Co-Founders of the Longevity Risk and Capital Markets Solutions Conferences. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume84, IssueS1Special Edition: Longevity 10 – The Tenth International Longevity Risk and Capital Markets Solutions ConferenceApril 2017Pages 279-297 RelatedInformation

The kinetics of pension economics along with its consequences and necessity of proper role and long-term commitments from the government of Bangladesh

The kinetics of pension economics along with its consequences and necessity of proper role and long-term commitments from the government of Bangladesh

Longevity Risk and Capital Markets: The 2011-2012 Update

Longevity Risk and Capital Markets: The 2011-2012 Update

About the Authors

About the Authors

The economics of state and local pensions

AbstractThis paper provides an overview of an economics-based perspective on the financial aspects of state and local public pensions in the U.S. Drawing on the research commissioned for an NBER research program on this topic, we discuss the large degree to which public pension liabilities exceed the assets set aside to fund them. We summarize issues related to the optimality of pre-funding, portfolio allocation, the discounting of liabilities, as well as how plans operate in practice. We also lay out an agenda for future research related to financial aspects of public pensions, retiree health plans for public employees, as well as issues related to plan design and labor market outcomes.

The Rise of Pension Fund Capitalism in Europe: An Unseen Revolution?

The pension funds have become America's new ‘tycoons’ – surely the most unlikely masters any society ever had. They have attained this position without any struggle, any crisis, any major ‘problems...

The Economics of Pensions

This paper sets out the economic analytics of pensions. After introductory discussion, successive sections consider the effects of different pension arrangements on labour markets, on national savings and growth, and on the distribution of burdens and benefits. These areas are controversial and politically highly salient. While open about expressing our own views, the main purpose of the paper is to set out the analytical process by which we reach them, to enable readers to form their own conclusions. 1 The backdrop This paper has a two-fold purpose. It sets out the economic analytics of pensions without discussion of empirical magnitudes and outside the context of any particular country, with the intention of giving readers a systematic way of thinking about the topic. The paper is also intended as a contribution to a continuing debate, hence part of the discussion rebuts arguments that we regard as false, or equivocal, or true in some circumstances but not necessarily always. Specifically, we argue that much analysis is incomplete and oversimplified: focussing on one objective while ignoring others; assuming an idealised economy with well-informed agents and no distortions such as taxes and missing markets; comparing one steady state with another, when the underlying issue is a move from one steady state to a different one; or ignoring distributional effects. The opening section sets out some background matters: the objectives of pension systems, types of pension arrangement, and the economics of pensions. Sections 2, 3 and 4 discuss in turn pensions and labour markets (mainly microeconomic), finance and funding (mainly macroeconomic), and distributional issues.

Review of 2004

As we begin the fourth volume of the Journal of Pension Economics and Finance, we are pleased that the Journal has begun to achieve important parts of its mission of being an influential contributor to the debate on pension provision. The Journal is now in about half of the top US academic libraries and is also indexed by EconLit and AgeLine. Pension and social security issues continue to be on top of the policy and research agenda in most major countries. As the first and only academic journal focusing entirely on pension economics and finance, the Journal of Pension Economics and Finance has been in a unique position to contribute to the public debate.

Shifting Perspectives in Pensions

This paper addresses the questions of what is an economically efficient pension system, what are the externalities and what are the risks of the four alternative pension systems: financial defined contribution (FDC), notional or non-financial defined contribution (NDC), financial defined benefit (FDB) and non-financial defined benefit (NDB). A main contribution of the paper is the development of the concept of NDC, itself a new construction in pension economics. An important conclusion is that NDC is neutral in terms of externalities. It manages the risks and eliminates the negative externalities associated with traditional public NDB schemes, and in a manner similar to FDC schemes.

Pension Economics: The Relativity of Time and Risk

Human nature, it seems, is as much conditioned by traditions and almost axiomatic customs as by science and the systematic and logical analysis of a given situation. The heated debates on the best (or at least the most widely acceptable) old age provision systems are a case in point. It can only be described as odd that arguably the biggest achievement of modern societies during the 20 century, an enormous improvement in the mean life expectancy in nearly all countries, is often perceived as one of the fundamental ‘‘problems’’ that we currently have to solve, from an economic but also a social point of view. We routinely speak about the ‘‘ageing’’ of populations in a manner that is, if not outright negative, full of adverse and antipathetic connotations. Tabloid headlines range from ‘‘The Ageing Problem’’ to ‘‘Old Age Time Bomb’’. The fact that the wider public is being made aware of a complex set of issues that our old age security systems and our societies at large are and will be facing is certainly to be welcomed. However, we have to be concerned that:

Tenuous Property Rights: The Unraveling of Defined Benefit Pension Contracts in the United States

The private pension market in the United States has been almost completely transformed in less then 20 years. In the early 1980s, over 80 percent of all covered workers in the private sector had a classic defined benefit plan. In the year 2001, this share has fallen to less than 40 percent. In addition, approximately one in five defined benefit plans (weighted by workers) converted to a cash balance variety, which are defacto defined contribution plans. Some of this movement is attributable to economic trends favoring the kinds of firms and industries that traditionally favored the defined contribution format, but the evidence shows a strong and persistent reduction in preferences for the defined benefit variety. I argue that the underlying reason for this trend is the adoption of a new tax policy towards terminations in the early 1980s, one that permitted terminations for reversion, which were not attributable to financial difficulty of the sponsoring firm. This change eliminated the mechanism that bonded the implicit pension contract, creating the possibility of unilateral termination by one party under conditions not originally contemplated in the contract. The more firms that either terminated their plan or converted it to the cash balance variety, the more that workers still covered by defined benefit plans discounted the likelihood that their plan would survive. Since terminations and conversions confer large capital losses on workers, workers become leery of continuing to invest in the plan (in the form of foregone wages) unless it offers an extraordinary rate of return, which in turn affects the economics of offering the plan. The growing distrust of workers for firms holding up their end of the bargain creates the conditions that are ripe for the unraveling of the industry. Following these trends, pension economics now focuses on the ability of firms to use defined contribution plans to influence productivity in the firm. Other questions arise: Absent defined benefit plans, will firms lose their ability to influence retirement ages? Will lump sums from defined contribution plans deliver comparable retirement income to future cohorts? These issues thus far remain unresolved.

Overview of the Issue

This is the final issue of the first volume of the Journal of Pension Economics and Finance. We are pleased that the Journal has had a very successful first year, both in terms of the quality of submissions and in terms of building up an extensive and high quality subscription base. We will report in more detail on our first year as well as our plans for the future in the first issue of the second volume.The four articles in this issue span a broad range of topics. The first article is by David McCarthy (Oxford University, Institute of Ageing), Olivia Mitchell (University of Pennsylvania, Pension Research Council) and John Piggott (University of New South Wales, Centre for Pensions and Superannuation) who have written a paper entitled: Asset rich and cash poor: retirement provision and housing policy in Singapore.As mandatory defined contribution systems are increasingly adopted around the world, the experience in Singapore is particularly relevant in that its Central Provident Fund (CPF) is one of the oldest major international examples of a mandatory defined contribution pension system. With funds representing roughly 60% of Singapore's GDP, the CPF is also one of the most prominent publicly managed investment funds in the world.The particular focal point of the McCarthy et al. paper is the effect of rules in Singapore which allow individuals to use their accumulated funds to pay for housing. The use of retirement savings vehicles for approved purposes, such as medical care, education and unemployment, is an important policy issue, with most countries continuing to have strict prohibitions on drawing funds prior to retirement.