Pension Expectations Research Articles

The role of the peer effect in forming pension expectations among the middle-aged: existence and mechanisms

Abstract Using the instrumental variable approach on nationally representative, individual-level data on middle-aged pension participants in China, this study quantifies the peer effect in the context of forming pension expectations. The study confirms the existence of the peer effect in forming pension expectations in the community. The probability of having optimistic pension expectations significantly increases by 0.309 percentage points if the proportion of optimists in the community increases by 1 percentage point. Moreover, the study explores the channels through which the peer effect operates and finds that the social learning channel dominates the social norms channel. The study also provides empirical evidence that village and township leaders as well as those with old pension program experience are opinion leaders in their peer group. Lastly, we find peer effects in other pension decisions, e.g., contribution size, and the contribution size increases by the proportion of optimists in the community. The study provides policy implications on ways to improve willingness to contribute to pension programs.

Pessimistic realistic or aware? – Hungarian youth’s pension expectations

Pension awareness is a specific part of financial awareness focusing on material preparation for the years of retirement at an unknown time to start in the distant future. Its starting point is dual: on the one hand, a recognition of longevity risk and, on the other hand, a proper assessment and planning of future options based on the individual’s current financial position. In this study, we wanted to survey the expectations of Hungarian university students about the state pension system, so we conducted online research with questionnaires. Three groups of questions were devised, (i) expectations of the state pension system, (ii) the generosity of the pension system, and (iii) retirement age. Pension-related expectations show that young people, in general, are quite pessimistic and regard the ageing society as the most worrying factor. Expectations about the generosity of pensions are also pessimistic, both in terms of replacement rate and the rate of state pension compared to pensioners’ total income which is estimated lower than it would actually be under the current laws. Expectations of retirement age reflect the European trends; the youth asked typically plan to retire at 65+. We also looked into regional differences and found the youth of Budapest and the Central-Hungarian region were quite negative on every issue while there were differences in other regions. Young people in Northern Hungary have a higher than average positive view of their retirement prospects. The negative attitude can be explained by the lack of transparency of the pension system and limited access to information. Also, because the reform of the state pension system is delayed in this country, respondents have major issues about its sustainability. Our findings can be important input for decision makers to shape the attitude of pension savings and retirement preparations.

Pension expectations and strategies of Russian residents

In 2019, a pension reform started in Russia, as a result of which the retirement age is raising and the pensions of Russians should have been increased. The article discusses Russian citizens’ attitude to the pension reform, provides estimates of the desired size of the future pension, options for personal life financial planning at retirement age. A comparison of the level of the average assigned pension and main indicators of the standard of living of the population shows the insufficiency of the current replacement rate. For the majority, the state pension is the main source of income at retirement age. The calculations given in the article show that a decent pension can be achieved on the basis of a state and non-state pension combination. But the stimulation of funded pension programs in Russia does not work due to low incomes of the population and distrust in non-state pension funds.

Pension Expectations and Household Portfolio Choice of the Elderly in Japan

Using the Japanese Study of Aging and Retirement (JSTAR), we examine the determinants of household portfolio choice by the elderly in Japan. Only one-fifth of Japanese elderly hold stocks among their financial assets. Japanese elderly who are more educated, have better mental functions, have higher income, and subjectively expect a greater probability of living until at least age 80 are more likely to hold stocks. Among those who plan to receive public pension benefits in the future, those who expect a greater decline in future public pension benefits have a smaller share of stocks and a larger share of bonds in their portfolio of financial assets, but both are in small quantities. The most important factors affecting the relatively low investment in stocks by Japanese elderly are educational and income differences, rather than their low expectations about their future pension benefits.

The impact of expected pensions on consumption: evidence from China

AbstractWe study how pension participation and expected pension benefits affect working-age adults’ consumption based on a nationally representative dataset from the China Health and Retirement Longitudinal Study (CHARLS) during the period 2011–2018. We find that the consumption of working-age adults who participate in China's Residents' Basic Pension is 15.4% higher than that of non-participants. Furthermore, we find that if working-age adults' expected pension benefits increase by RMB 1, their consumption will increase by RMB 0.34. Overall, our findings suggest that pension expectations are critical to the consumption decisions of working-age adults and can, therefore, positively affect total domestic consumption.

Pension Pessimism in the Young Generation: Basics or Instincts to Blame?

Abstract Background: The area of pension expectations in Hungary is barely researched. However, the importance of adequate financial literacy and self-provision is becoming obvious at the economic, the decision-making, and the individual level. Objectives: Our research is conducted to investigate state pension expectations and certain aspects of financial literacy of the young generation, and to find a behavioral explanation for their pessimistic attitude. Methods/Approach: Using a 14-question questionnaire, we collected answers from Hungarian financially educated, young people. Two hypotheses were investigated by the Principal Component Analysis (PCA). Besides, a comparative analysis was conducted to connect the survey results with the ten instincts published by Hans Rosling in his book ‘Factfulness’. Results: The outcomes are in harmony with prior expectations, i.e. i) students in finance major are aware of the connection between a longer working period and a higher retirement income; and ii) despite the unisex pension scheme there are gender differences in the expected pension age. In the comparative analysis with ‘Factfulness’, we identified five instincts that lie behind the general pessimism of respondents. Conclusions: State pension expectations of the Hungarian young generation are overly pessimistic, the same attitude being found in international literature, as well. Pessimistic expectations can be explained using some of the ten instincts by Rosling.

Pension expectations, reforms and macroeconomic downturn in Italy. What can microdata tell us?

ABSTRACTWe use different years of the Bank of Italy’s Survey on Household Income and Wealth (SHIW) to explore how Italian workers’ expectations regarding their future level of pension benefits and retirement age changed from 2000 to 2014. Comparing expected and statutory values for future pension benefits and retirement ages, we find that knowledge of the pension system and its rules are not evenly distributed among workers. Some sections of the population, in particular, younger workers, women and the self-employed, are less precise in estimating their future pension benefits. As for retirement age, a large share of the working population still has not completely assimilated the implications of the linkage with the evolution of lifetime expectations at 65. Expectations in the final part of the period observed are dominated by increasing pessimism, which may be related to the macroeconomic crisis of the Italian economy and to the approval of a severe pension reform in 2011. Checking whether a household’s total wealth is consistent with lifetime consumption, we find that households where the head overestimates the future value of the pension benefit accumulate fewer resources than the remaining part of the population.

The Revival of Private Landlords in Britain’s Post-Homeownership Society

ABSTRACTHomeownership has been declining in favour of private renting in most developed English speaking countries since the early-2000s. Public debates in countries like Britain, Australia and the US have subsequently focused on the ostensible coming of age of ‘generation rent’, constituted of younger individuals excluded from home buying and traditional routes to housing asset accumulation. While the focus of this paper is the significance of access to housing assets as a means to offset potential economic and welfare precarity, our concern is landlords rather than tenants. Drawing on British survey data, we show that the rental boom has been accompanied by increasing multiple property ownership among classes of largely middle-aged and relatively affluent households. Over one-million small-time landlords have emerged in the last decade alone, who, we argue, are part product of historic developments in housing markets and welfare states. Generations of British have not only been orientated towards their homes as commodity assets, they have also begun to mobilise around multi-property accumulation in a context of shifting welfare and pension expectations.

Heterogeneity in consumers’ income and pension expectations

AbstractThe expectations of economic agents play a crucial role in almost any inter-temporal economic model. Using 2009–12 panel data for a representative sample of the Dutch population, we analyze consumers’ income and pension expectations. We focus on heterogeneity across socioeconomic groups and associations with how consumers perceive the economic and financial crisis. We find that pension expectations become more pessimistic over the 4 years, in line with pension reforms and the crisis. We find substantial differences across groups that are generally plausible and in line with financial theory.

Pension Expectations and Reality. What Do Italian Workers Know about Their Future Public Pension Benefits?

We use 6 waves of the Bank of Italy’s Survey on household income and wealth (SHIW) to check the evolution of workers’ expectations on future pension benefits and retirement age from 2000 to 2012. Based on these two subjective evaluations, we compute a measure of expected pension benefit and compare it with a “true” measure of the same variable that we estimate on the basis of the pension rules in each year of the considered time lapse. By comparing subjective and “true” measures of the variable, we are able to measure the evolution over time of the “expectation error” and its distribution among different economic and demographic subsets of the population. Finally, we estimate a subjective measure of social security wealth and the degree of substitution between this variable and the private net worth of workers’ households, in order to quantify the effects of pension reforms approved in the period considered on wealth accumulation.

The Financial Crisis and Consumers' Income and Pension Expectations

The expectations of economic agents play a crucial role in almost any inter-temporal economic model. A period of economic crisis may make consumer expectations more pessimistic and affect their saving or retirement plans and decisions. Using 2009-2012 panel data for a representative sample of the Dutch population, we analyze consumers’ perception of the crisis and its expected impact on the household. Second, we analyze the deviations between short run income expectations and realizations, and how they are shaped by how people perceive the crisis. Finally, we study how crisis perceptions affect retirement age and income expectations.

Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands

We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees' expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variables estimates for financial knowledge, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.

Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands

We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees’ expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variation for financial conditions and financial knowledge of relatives, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.

Satisfaction with Pension Provisions in the Netherlands - A Panel Data Analysis

This paper analyzes satisfaction with aspects of pension provision of the Dutch population using longitudinal data collected between August 2006 and June 2009. It focuses on five self-reported satisfaction levels: satisfaction with the age at which the individual can retire, with the expected amount of pension income, with the knowledge about own pension provisions, with own pension provisions overall, and with the Dutch system of pensions and old age social security. It identifies the socio-economic determinants of each of these satisfaction levels such as age, gender, education, and occupational status, as well as the importance of satisfaction with aspects of pension provisions for overall satisfaction. It also looks at the association between pension satisfaction and expectations concerning future generosity of the system and opinions on how flexible a pension system should be. Moreover, the effects of the reversal of early retirement measures are investigated. Finally, it explores the consequences of the recent financial crisis for pension satisfaction.

The Aftermath of the Cash Balance Controversy: Defining Age Discrimination for Traditional Defined Benefit Pensions

The appellate decisions upholding cash balance pensions against the claim of age discrimination are unconvincing. Nevertheless, these decisions reach the proper result as a matter of pension policy. These decisions read the statutory term accrual as meaning employer contributions for purposes of measuring for age-based pension discrimination in the defined benefit context. However unpersuasive this reading may be as a textual matter, it reaches a sound outcome in terms of pension policy. In particular, this reading of the pension age discrimination statutes enables employers sponsoring traditional, annuity-paying defined benefit pensions to control their costs by decreasing the annual growth of the accrued benefits earned by older employees. This ability to subdue costs will encourage employers to remain with their traditional defined benefit plans rather than move to the cash balance format or 401(k). On the other hand, controlling costs by reducing the rates at which older workers accrue additional benefits will disappoint the reasonable pension expectations of some, perhaps many, of those older workers.

Factors that Influence Attitudes Toward Retirement

A set of older workers 58 to 64 years of age from the Raleigh-Durham-Chapel Hill metropolitan area were followed for two years to explore their attitudes toward retirement. Findings include (1) workers who retired by 1994 were more positive about retirement than those who continued to work; (2) attitudes toward retirement in 1992 were influenced by social background, expectations of a pension, having an anticipated time for retirement, worker identity, and self-concept factors; and (3)attitudes toward retirement in 1994 were bolstered by expectations of a pension at retirement, participation in retirement planning activities, earlier attitudes toward retirement, and self-esteem. Further, the pension expectations, retirement planning, earlier retirement attitudes, and identity as a confident worker increased and depression decreased attitudes toward retirement for retirees, while retirement planning, earlier retirement attitudes, and self-esteem improved attitudes toward retirement for those who continued to work.

Pension expectations as disincentives to job mobility

I address the measurement problem of the extent to which workers in an industry face disincentives to changing employment because of an interest in private pension benefits. I take an individual worker as the unit of analysis and represent job mobility over the work life by a time-varying point process. I treat the various plan types (pension systems) in a unified way through a general reward function (accumulated benefit function). By merging the employment termination process with this function, I derive two other benefit functions to measure the pension expectations of a worker from current and future employments. I then use these functions to construct a loss function that trades off the benefit gains and losses faced by a worker in a pension system at the time of a potential job change. I apply the methodology developed in the paper to the United States pension system, using data from the 1989 Survev of Consumer Finances.

Pension Funds in the UK — Danger Ahead?

Three major sources of danger threaten UK pension rights and/or expectations of scheme members — “pension holidays” or a rebate of contributions by the firm, the winding‐up of a scheme by the sponsoring company and the take‐over of the sponsoring company by a predator. The hazards facing the pension funds which now find themselves with massive actual surpluses are assessed.

CRITICAL EVALUATION OF PENSION PLANS

IT MAY BE CONTENDED that any one person's critical evaluation of pension plans must be inadequate since his notion as to the success or failure of the plan will depend on what goal he has in mind for it. The argument follows that since plans serve different purposes for different people, a poor mark in its evaluation by one person may have no relevance in evaluating its success for another person. To be more specific, it is often stated as a foregone conclusion that the goals set for pension plans by the Government are inconsistent with the objectives of employers; with the result that a poor mark from the Government may merely indicate the success of the plan from the employer's point of view. This argument will not withstand a critical evaluation. In many respects, the success or failure of a pension plan in fulfilling its expectations will depend on constant factors; whether this success or failure is from the viewpoint of the employer, the employee, or the Government. An example in point is the matter of guaranteeing that an employee's pension expectations will, in fact, be met through the payment of pension benefits to him. For the employer, a pension plan will surely survive its critical evaluation if it serves as an effective inducement to prospective employees and, at the same time, acts as a positive incentive for his existing employees to stay with the company. In either respect, however, the plan will be a success only if there is a reality behind its promise and this reality is known to the employees. If not, the pension plan certainly will not be a factor in an employee's decision to join-and remain-with the company. For the employee, a pension plan will probably represent an important element in his retirement planning. With this promise of retirement funds, he will feel secure in using more of his present income for other types of savings or perhaps for consumption. If he retires and receives his pension, his critical evaluation will likewise be positive. If, on the other hand, there are no funds to meet his benefit payments, the plan from his standpoint is an utter failure. For society, private pension plans represent a valuable supplement to the basic social security system. They enable employees to retire with incomes more closely related to their existing standards of living than would be possible by relying solely on the social security system within its present structure. If the private retirement system is successful in meeting this goal, society, as a whole, would undoubtedly give it a high mark in its critical evaluation. However, this goal can be met only if the pension plans, in fact, make the pension distributions which they promise. Thus, there is at least one common measure of the success or failure of a

Book Review: Social Insurance and Employee Welfare: Fulfilling Pension Expectations

Book Review: Social Insurance and Employee Welfare: Fulfilling Pension Expectations