How Much Do Means-Tested Benefits Reduce the Demand for Annuities?

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits or income supplements. The availability of such meanstested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up "free" wealth in the form of means-tested supplemental benefits. We show that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Moreover, the model's predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.Means-Tested Benefits, Occupational Pension, Annuity.

What Triggers Early Retirement ? Results from Swiss Pension Funds

Early retirement is predominantly considered as the result of incentives set by social security and the tax system. But people seem to retire early even in the absence of such distortions as the Swiss example demonstrates. We look for determinants of early retirement, in particular the role of lifetime income and family status, using individual data from a selection of Swiss pension funds. Our findings suggest that affordability is a key determinant in retirement decisions: More affuent men, and - to a much smaller extent - women, tend to leave the work force earlier. The fact that early retirement has become much more prevalent in the last 15 years is another indicator for the importance of affordability as Switzerland's funded pension system has matured over that period leading to higher effective replacement rates.occupational pension; retirement decision; duration models

How Much Do Means-Tested Benefits Reduce the Demand for Annuities?

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental benefits. We find that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Using individual level data, we show that the model’s predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.means-tested benefits, occupational pension, annuity, life-cycle model

Why Forcing People to Save for Retirement may Backfire

If individuals are unable or unwilling to borrow, a higher than desired second pillar pension capital may induce people to retire earlier than they would have in the absence of such a scheme. Individuals thus leave the workforce as soon as the retirement income is deemed sufficient and the pension plan avails withdrawal of benefits. We provide evidence using individual data from a selection of Swiss pension funds, allowing us to perfectly control for pension scheme details. Our findings suggest that affordability is a key determinant in the retirement decisions. The higher the accumulated pension capital, the earlier individuals tend to leave the workforce.occupational pension, retirement decision, duration models

Arbeiten lohnt sich nicht - ein zweites Kind noch weniger. Zu den Auswirkungen einkommensabhängiger Tarife auf das (Arbeitsmarkt-) Verhalten der Frauen

Child-care subsidies are meant to facilitate work for mothers with small children. The paper demonstrates that the predominant current income-dependent subsidy scheme in Switzerland (which is currently also discussed in Germany) creates strong negative work incentives especially for well qualified women. The example of the city of Zurich shows that it does not pay off for mothers to work more than one to at most three days per week, as any increase in the hours worked leads to a more than proportional rise in child-care costs. For more than one child, the effective total marginal tax rate, including child-care expenditures, can well exceed 100%. This effect is primarily due to the endogenous pricing of child-care facilities implied by the scheme, and much less to progressive taxation. Pushing these mothers out of the labor market creates a loss in human capital and tax revenue

Arbeiten lohnt sich nicht - ein zweites Kind noch weniger

Child-care subsidies are meant to facilitate work for mothers with small children. The paper demonstrates that the predominant current subsidy scheme in Switzerland, which ties the subsidies to realized income (but not to potential income), creates strongly negative work incentives especially for well qualified women. With the example of the city of Zürich it is shown that it does not pay off for mothers to work more than one or two days per week, as any increase in the hours worked leads to a more than proportional rise in child-care costs. For more than one child, the effective total marginal tax rate, including child-care expenditures, can well exceed 100%. This effect is primarily due to the endogenous pricing of child-care facilities implied by the scheme, and much less to progressive taxation.Child Care Subsidies, Female Labour Supply, Fertility