Pension Replacement Rates Research Articles

Study on the Impact of China’s Pension Insurance System on the Savings Rate of Urban Residents Based on the Preventive Saving Perspective

In the context of population aging, the study of the impact of the pension insurance system on the savings behavior of urban residents can help reduce preventive savings, increase current consumption, and promote the healthy development of the economy. This study constructs a two-period OLG model of the pension insurance system based on the preventive saving perspective using urban panel data of 31 provinces from 2002 to 2021 and conducts empirical analysis through the systematic generalized method of moments. The results show that the pension insurance participation rate was positively correlated with the savings rate, while the pension replacement rate was negatively correlated with the savings rate, and this effect varied significantly across income levels and different levels of aging. Increased participation in high-income areas promoted savings, while increased pension replacement rates in low-income areas reduced savings. The positive correlation between participation rates and savings rates was more pronounced in regions with higher levels of aging, while the opposite was true in regions with lower levels of aging. In addition, the negative correlation between pension replacement ratios and savings rates was particularly pronounced in high-aging regions.

Navigating risk: Impact of overconfidence in financial literacy on retirement wealth reserves

This study examined the impact of overconfidence in financial literacy on risky asset investments within retirement wealth reserves. We used data of 36,268 respondents of the “China Aging Finance Survey” (2020–2022). The findings reveal that overconfidence significantly drives households toward riskier investments, and the conclusions were reinforced through robustness checks. Furthermore, the effect was moderated by pension replacement rate satisfaction, willingness to pay for financial advice, and risk preferences. Heterogeneity analysis indicates that male respondents and less educated respondents were significantly affected by overconfidence. Moreover, respondents with basic pension insurance were likelier to opt for risky assets.

Periodization of stages of the Russian Federation pension system reforming

Subject. This article examines the pension system of Russia in the period from 1990 to the present, the step-by-step process of its formation, development, reform, and accompanying problems. Objectives. The article aims to periodize the process of pension reforming in post-Soviet Russia, describe the main stages, summarize the transformations, and assess the further prospects of the pension system. Methods. For the study, we used comparative, statistical, analytical, and chronological methods. Results. The article identifies the key stages in the development of the pension legislation of the Russian Federation and analyzes each of them from the standpoint of setting goals, their implementation and consequences, and the ensuing problems. Conclusions. The decline in the pension replacement rate, the budget deficit of the Social Fund of Russia, the liquidation of the State-funded pension and the unclear prospects of the new long-term savings programme cast doubt on the sufficiency and effectiveness of the reforms carried out. In the future, compulsory pension insurance will develop towards a pay-as-you-go pension scheme. The funded component of the system will move to the sphere of non-State pension provision.

Evaluating the impact of social security contribution rate, delayed retirement age, and employment rate on pension replacement rate: An overlapping generation (OLG) model analysis

This study evaluates the impact of the social security contribution rate, late retirement age, and employment rate on pension replacement rate by using an overlapping generation (OLG) model that provides insightful measures on the endogenous pension replacement of retired employees in China. We conducted empirical analysis, Bootstrap & Sobel Test (BST) for mediating effect and used fixed and mediated effects models on panel data of 31 Chinese provinces to achieve specific employment promotion and pension replacement rates. The late employment rate is positively significant and correlated with the social security contribution rate (SSCR), which shows the late retirement age can significantly reduce SSCR. The optimal combination identified in the late retirement age that decreasing SSCR. The above results indicate that the intermediary effect is significant. Simultaneously, SSCR does play an intermediary role in the relationship between the late retirement age and the employment rate. The late retirement age affects the employment rate through the social security contribution rate; thus, the late retirement age reduces a corporate social security contribution rate and labor cost and then prompts the enterprise to increase employment demand. Furthermore, BST mediating effects show that the SSCR significantly affects the late retirement age and employment rate. We conclude effective policy reforms can alleviate the late retirement age dilemma because a decline in the social security contribution rate causes a 1 % reduction in the social security contribution rate causing the 0.41055 percent late retirement age yearly.

Country-level, mandatory, self-financeable pension replacement rates in OECD countries

AbstractThe replacement rate (RR) is a quintessential property of pension systems. Yet, current measures of the RR are plagued with problems. We argue that the concept of RR should be based on the replacement of lifetime permanent income rather than pre-retirement income, and we show that the self-financeable RR with respect to the permanent income has the advantage of being independent of labor income (wages and density of contributions). We define an RR measure, called CRR, as the country-level RR of the permanent labor income that the working-age population could buy with their mandatory pension deposits if they stay constant over time. Pension deposits refer to national mandatory contributions plus the fraction of non-contributory pensions whose financing could be attributed to the working-age population, all as a percentage of the gross domestic product. The CRR is easy to compute and interpret, is nationally representative, and provides an international ranking because it is independent of pension rules, GDP, intertemporal and intergenerational redistributions, and sustainability. The application of the CRR to most OECD countries using the available data shows a 65% average across them, with several countries achieving a 100% RR, all mostly due to their high mandatory contributions as a percentage of GDP.

Poverty and Social Policy of Aging: Investigating the Determinants of Income Poverty Among Older Adults in the Organization for Economic Co-operation and Development Countries

Objectives: Income poverty is one of the most common problems of old age. It varies among older adults living in different societies. This study aims to investigate the predictors of income poverty in older adults based on the data from Organization for Economic Cooperation and Development (OECD) countries. Methods: The secondary data analysis method was used in the present study. The income poverty rate and its associated variables were extracted from 36 members of OECD countries and entered into the SPSS software, version 22. For data analysis, descriptive and inferential statistics, including the Pearson correlation coefficient test and multiple linear regression analysis were employed. Results: The results showed that in the studied countries, the mean of income poverty among older adults was higher in women (11.48±16.2), and the elderly aged 75 years or above (12.57±16.1). The income poverty of older adults was significantly correlated with older adults’ share in the gross domestic product (r=-0.376, P=024), targeted pension coverage (r=-0.505, P=0.003), income sources based on public transfers (r=-0.460, P=0.005), income sources from work (r=0.697, P=0.000), mandatory pension contribution rate (r=-0.343, P=0.040), and net pension replacement rate (r=-0.424, P=0.010). The results of regression analysis also revealed that variables of income sources from work and targeted pension coverage explained 66% of the variance in income poverty among older adults. Discussion: It is important to pay attention to the variables of age and gender of older people to overcome economic vulnerability in social policies. It is also necessary to consider the role of the share of public transfers and basic old-age pensions to reduce older adults’ poverty. The lessons to be learned from OECD countries in this research are useful for the social rehabilitation of older adults in Iran.

Priming or learning? The influence of pension policy information on individual preferences in Germany, Spain and the United States

A promising approach to pension policy preferences focuses on the influence of policy related information. We advance this research programme by examining the impact of information about future pension benefits, including whether information effects occur through priming, learning or both. Drawing on a novel, split-sample survey experiment in the US, Germany and Spain, we examine the impact of information on forecasted pension replacement rates for 2040 on pension policy attitudes. Findings indicate that the information treatment increases support for the two outcomes considered: (i) increases in the pensionable age and (ii) greater spending on pensions relative to other social programmes. Analyses of heterogeneous treatment effects accounting for prior beliefs of participants show that information effects occur both through priming and learning. The study concludes that hard, non-partisan information increases support for reforms that foster the financial sustainability of pension systems, although the scope of information effects depends on contextual conditions.

Calculation of the transition coefficient and moderate level of China's pension system unification

In this paper, the transition coefficient of replacement rate is taken as the breakthrough point for studying the pension system unification of China's government and public institutions. We present the basic principles and mathematical model of the transition coefficient for the pension replacement rate based on horizontal unification and vertical transition characteristics using time smoothing methods. We construct a general measurement model for calculating the pension unification transition coefficient and further transform it based on the current policy and the moderate replacement rate. On this basis, we introduce the pension account rate of return in order to simulate the realisation of the transition coefficient and determine the characteristics of the transition coefficient under the different rates of return, thus providing an important reference for the coordinated development of pension unification transition and the individual and occupational pension accounts. Based on this, we put forward relevant countermeasures and suggestions.

How partisan politics influence government policies in response to ageing populations

Since old-age programmes mitigate life-course risks that are relevant to individuals across socio-economic groups in ageing societies, all parties have a political incentive to support these initiatives. Nevertheless, pre-existing partisan commitments bind the policy instruments that parties use. Cabinet-level analyses of OECD economies demonstrate that left incumbency relies more on public expenditure than right-wing governments. What is more important is that, in the context of large elderly populations, pension coverage is greater under right-leaning governments, while pension replacement rates are higher in left-leaning governments. This shows that party behaviour related to life course-related policies cannot be explained by the conventional pro-expansion versus the pro-retrenchment partisan politics. Rather, a focus on partisan variation in the use of policy instruments is required.1

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.

Does Delayed Retirement Crowd Out Workforce Welfare? Evidence in China

Does delayed retirement crowd out the welfare of the workforce? To answer this question, a dynamic optimization framework is established to simulate the impact of delayed retirement on the welfare of the working population over time. Simulations are conducted based on practical and feasible parameters. Delayed retirement was found to improve the welfare of the working population rather than crowding it out. Furthermore, the results are robust against changes in parameters and modes of supporting elderly individuals. In terms of policymaking, it is suggested that such facts be shared with the public and that a delayed retirement plan be introduced as soon as possible to manage the pension and retirement wave caused by post-1960s baby boomers. However, to ensure that the delayed retirement plan does not lead to a reduction in the welfare of the working population, increases in fertility costs and the pension replacement rate should be appropriately controlled.

Pension Policy Literacy and Retirement Expectations: A Cross-Country Survey Experiment.

This study reports the findings of the first cross-national survey experiment on the effects of information on the expected retirement age. Given the drawbacks of unrealistic retirement expectations, the study examines the impacts of nonpartisan information about future demographic aging and forecasted pension benefit levels. An online survey experiment was conducted in the United States, Germany, and Spain in 2018 using an internet access panel. We assigned respondents to 2 random treatments: one citing the change in the projected share of the population older than 65 years (demographic treatment) and another citing the projected change in pension replacement rates (benefits treatment), both for 2015-2040. Treatment effects on the expected retirement age are reported. The benefits treatment has a strong influence on retirement expectations. In the United States, respondents informed of the expected decline in pension replacement rates expect to retire 2 years later than respondents not informed of the decline. In Spain, this treatment leads to an approximately 9-month postponement of expected retirement, while no significant effect is found in Germany. In addition, the demographic treatment does not affect retirement expectations in the countries studied. Respondents in all countries informed of future population aging do not show different expected retirement ages than respondents not given this information. People's retirement expectations are sensitive to information on future changes in pension generosity but not to information on population aging. The results suggest information campaigns focused on declining pension replacement rates may help extend working lives.

PENSION REFORM - GOALS AND ESTIMATED RESULTS

PENSION REFORM - GOALS AND ESTIMATED RESULTS

Public Pension Generosity and Old-Age Poverty in OECD countries

AbstractPension adequacy is gaining importance as old-age poverty remains a pressing problem. In many advanced welfare states, the population is ageing rapidly and recent pension reforms have led to cuts in public pension provision. There are, however, few comparative longitudinal studies on the relationship between pension generosity and old-age poverty. This study provides a comparative empirical assessment of how the prevalence and depth of old-age poverty relates to generosity of public pension benefits in 14 advanced OECD welfare states from 1980-2010. We focus on the role of mandatory public pension provision of mainly first tier schemes that grant the major share of retirees’ income in most countries. We use data on theoretical pension replacement rates for retirees who had different working-age incomes. In order to address endogeneity issues, we adopt an instrumental-variable approach. Our main finding shows that pensions systems and earnings-related schemes, in particular, are quite efficient in reducing the risk of old-age poverty. Yet they still do very little to alleviate poverty among those pensioners in the most disadvantaged situations. We also found that redistribution within the pension system does not substantially contribute to poverty alleviation.

Pension scheme trustees as surrogate decision makers

Pension trustees make surrogate decisions on behalf of scheme members. However, prior research has not explored how this might affect pension adequacy. Our results show that when setting targets for pension replacement income, trustees project their own preferences instead of reflecting member preferences. Furthermore, projection was more pronounced for trustees with lower financial literacy. Trustees choose significantly higher pension replacement rates for members than members choose for themselves. Trustees also choose replacement rates higher than current benchmarks. The economic consequences are potentially considerable, due to high levels of pension contributions and incompatible risk-taking. A better understanding of the dynamics of decisions made by trustees is needed to ensure better member outcomes.

A Simulation Study of the Effect of Delayed Retirement on Welfare of the Elderly: Evidence from China

In order to cope with population aging and emerging labor shortages, the Chinese government may soon introduce a policy to address this problem by raising the normal retirement age. However, the effects of planning for delayed retirement on the welfare of the elderly remain unknown. From an intergenerational support perspective, we develop a dynamic optimization model that can simulate changes in the welfare of the elderly over the years under different delayed retirement scenarios. Simulation results show that delaying retirement will produce a detrimental effect on old-age welfare. We further analyze strategies to mitigate this adverse effect and improve people’s welfare. First, the delayed retirement policy should raise the pension replacement rate, which could transfer part of the social welfare improvements from delayed retirement to the elderly through the transfer payment mechanism. Second, when adopting a defined-contribution pension system, the delayed retirement could increase the welfare of the elderly and the social well-being. Implications for future research and public policies concerning welfare effects of delayed retirement are discussed.

THE EFFECT OF DELAYED RETIREMENT ON SOCIAL WELFARE IN CHINA FROM THE PERSPECTIVE OF THE PENSION REPLACEMENT RATE

This study cuts through the pension replacement rate and aims to investigate the impact of delayed retirement on social welfare. First, this study establishes a two-period overlapping generations model and obtains the effect of delayed retirement on the replacement rate under general equilibrium conditions. Second, this paper uses actuarial and statistical methods to build a pension balance model and specifically analyzes the effect of delayed retirement on the pension replacement rate on different income groups under local equilibrium conditions. The study finds that when the contribution base and other parameters do not change, the retirement age and the replacement rate move in the same direction. When the increase in the retirement age becomes larger, the proportion of the replacement rate also increases gradually becoming larger. The increase in the range of the pension replacement rate of the high-income group is greater than for the low- and middle-income groups.

From Benefits and Beneficiaries: The Historical Origins of Old-Age Pensions From a Political Regime Perspective

Global studies on the historical origins of old-age pensions from a political regime perspective are quite rare. Based on the novel PENLEG dataset this article shows that democratic and nondemocratic regimes had different policy priorities when designing old-age pensions for the first time. Whereas democracies had significantly higher legal pension coverage rates than nondemocratic regimes, the reverse pattern can be found for pension replacement rates. The study also shows that temporal effects and colonial legacy mattered. Longstanding democracies introduced much higher legal pension coverage rates than countries that had recently democratized. Additionally, the French colonial legacy spurred high legal pension coverage rates in African autocracies. These findings underline the importance of taking the multidimensionality of welfare programs into account when analyzing political regime differences. Moreover, due attention must be paid to the historical context when theorizing about welfare policies from a political regime perspective.

Construction and Analysis of Actuarial Model of the Influence of Personal Tax Deferred Commercial Pension Insurance on Personal Pension Wealth in China

Taking mortality distribution, surrender value, and tax relief factors into consideration, the authors construct an actuarial model for the influence of personal income tax deferred commercial pension insurance on changes in personal pension wealth and adopts a numerical simulation to deliver the corresponding changes in personal pension wealth to different initial insured age and different initial insured annual salary. In order to better measure the security level of the commercial pension insurance, the model for the net replacement rate of pension of the commercial pension insurance was further constructed. The results show that the effect of participating in the personal income tax deferred commercial pension insurance on the present value of personal pension wealth depends on the combined action of the initial insured age and the initial annual salary. Under the same insured age, because men retire later and work longer than women, men can obtain a higher accumulation of personal pension wealth than women. For insured persons with different income levels, high-income groups can obtain higher personal pension wealth growth, and although low-income groups cannot obtain higher personal pension wealth growth, they can obtain a significant increase in the pension replacement rate by participating in the insurance, thereby better guaranteeing their living standards after retirement. Regardless of the income level, tax relief can be obtained once participating in the insurance, but the value may vary. The optimal tax-saving age for men is 23 years old, and for women 25 years old.

Linked lives, linked retirement? Relative income differences within couples and gendered retirement decisions in Europe.

Our article investigates the role of relative income distributions within couples for individuals' retirement risks. It addresses the following questions: How does the share someone provides to the couple income affect that person's retirement decision? What gender differences do we observe and what contextual factors can explain country differences? Our multilevel analyses draw on data from the European Union Statistics on Income and Living Conditions (EU-SILC) study (2010-2016), comparing 26 countries. The results show that female main earners transition to retirement earlier than female secondary earners as they approach the official retirement age. This effect is even stronger in countries with more traditional gender norms. The opposite pattern is found for men, whereby male secondary earners retire earlier than male main earners in more gender traditional societies. We explain this finding on the basis of doing gender theories, which predict that gender-atypical behaviour in one area of life is compensated by traditional gender behaviour in other areas, especially in contexts with traditional gender norms. A further finding relates to the generosity of the country's pension replacement rate, which shows to be a factor facilitating retirement especially for those with an equal earning partner.