Occupational pension schemes: prospects and reforms in the UK

Private pensions seem likely to provide the dominant source of income for the majority of retired workers in the future. New private pension instruments developed since 1986, notably personal pensions, have proved popular, but concern as to ‘overselling’ of personal pensions and as to the risks associated with the ‘money purchase’ form of pension provision is frequently voiced by commentators. For many people, rightly or wrongly, the ‘traditional’ finalsalary- based occupational pension remains the bench-mark for private pension provision in the UK. Nevertheless, recent trends, most notably the growth of alternatives to final- salary-based arrangements and a shift in attitudes towards pension provision among employers, suggest that the occupational pension sector will undergo significant changes in the future.

Household saving rates and the design of public pension programmes: cross-country evidence

I argue that the offsetting effect of public pension contributions on household retirement saving depends on how closely the public pension programme imitates a private retirement saving plan (i.e. the ‘actuarial’ content of the public pension programme) – the closer the design of the programme to a private retirement saving plan, the higher the offset. I estimate the determinants of household saving rates in a cross-country panel, augmenting standard measures of public pension programme generosity and cost by indicators that proxy the actuarial component of the programme. These indicators affect saving rates as predicted.pension reform, household saving.

Macroeconomic Performance and the Design of Public Pension Programmes

I examine the impact of the design of the Irish public pension programme on two dimensions of Ireland’s macroeconomic performance - employment and the average saving rate. Two facets of the programme might affect these outcomes - the lack of generosity of the programme relative to other OECD countries, and the high degree of redistribution embedded in the programme. These characteristics suggest that the programme has little ‘crowding out’ effect on saving rates. For employment rates, the two facets have contradictory effects that ultimately cancel out in their aggregate effect. These findings are illustrated by using a cross-country analysis to simulate a counterfactual where Ireland instead had a pension programme with the average characteristics of OECD countries (i.e., both more generous and less redistributive).

Ageing and saving

The issue of ageing and saving has two distinct facets. On the one hand, there is the individual issue. Each of us is getting older and wants to make sure that our savings plans are appropriate. I term this the ‘microeconomic’ aspect of saving and ageing. At the same time, OECD economies are themselves ageing: people are living longer, the baby-boom generation, born after 1945, is passing through to middle age and, in some countries, fertility rates are below replacement levels. I term this the ‘macroeconomic’ aspect of ageing, and it will affect these economies in almost all dimensions: in savings and investment rates, in the growth rates of productivity, output and public spending, in wage structure, educational attainment and labour supply (Disney, 1996). And, of course, there are links between the microeconomic and macroeconomic facets of ageing: for example, as a country ages, with more elderly dependants relative to workers, it becomes harder to sustain the social security pension without higher taxes. In turn, a prospective decline in the social security pension may cause people to revise their individual or household saving and retirement strategies.

Reform of police pensions in England and Wales

We analyse pension reforms for police officers in England and Wales using force-level data. We quantify the impact on overall police pension plan liabilities, examining incidence across police officers, national and local taxpayers. We also examine reforms of retirement rules, especially concerning early retirement on grounds of ill-health. Differences in ill-health retirement across forces are statistically related to area-specific stresses of policing and force-specific human resources policies. Reforms in 2006 impacted primarily on the level of ill-health retirement among forces with above-average rates of early retirement. We find residual differences in post-2006 ill-health retirement rates across forces are related to differential capacities to raise revenue from local property taxes

The economic well-being of older people in international perspective: a critical review

This paper surveys a dozen international comparative studies of poverty, income distribution and older people in industrialized countries using data up to the mid-1990s. It addresses a series of questions. At what level are the incomes of the elderly relative to the population as a whole? How has this changed over the past two decades? How many of the old are poor? How many of the poor are old? Are the oldest of the old poorer than younger pensioners are? The results show that the incomes of older people are typically around 80 per cent of incomes of the whole population. This ratio has been increasing over the past two decades in most countries. Although there remain pockets of poverty among the elderly, the old are generally represented proportionally or under-represented among the poor.pension; income distribution

The economic well-being of older people in international perspective: a critical review

This paper surveys a dozen international comparative studies of poverty, income distribution and older people in industrialized countries using data up to the mid-1990s. It addresses a series of questions. At what level are the incomes of the elderly relative to the population as a whole? How has this changed over the past two decades? How many of the old are poor? How many of the poor are old? Are the oldest of the old poorer than younger pensioners are? The results show that the incomes of older people are typically around 80 per cent of incomes of the whole population. This ratio has been increasing over the past two decades in most countries. Although there remain pockets of poverty among the elderly, the old are generally represented proportionally or under-represented among the poor.pension; retirement; income distribution

Pension plans and retirement incentives

This paper aims to examine the impact of type of pension scheme on retirement behavior. Section 1 describes a simple, theoretical model of optimal retirement. Section 2 introduces an empirical model of a simple retirement savings plan, or defined contribution pension scheme. Section 3 compares this with a defined benefit scheme. Sections4 and 5 examine the effect of these pension plans on work incentives. The following three sections extend the basic model to introduce'real world'features of pension plans. Section 9 examines the policy implications of the results and sets out anagenda for future research in this area. The results show a powerful incentive to leave work at the earliest possible age in defined benefit plans. Defined contribution plans, in contrast, encourage people to remain in work longer.Wages, Compensation&Benefits,Youth and Governance,Economic Theory&Research,Environmental Economics&Policies,Pensions&Retirement Systems

Housing Wealth, Liquidity Constraints and Self-Employment

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to selfemployment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.Self-employment, liquidity, windfalls.

Financial Literacy ad Indebtedness: New Evidence for UK Consumers

We utilise questions concerning individual ‘debt literacy’ incorporated into market research data on households’ unsecured debt positions to examine the association between consumer credit and individual financial literacy. We examine the relationship between individual responses to debt literacy questions and household net worth, consumer credit use and over-indebtedness. We find that financially illiterate households have lower net worth, use higher cost credit and are more likely to report credit arrears or difficulty paying their debts. However, financially literate households are more likely to co-hold liquid savings and revolving consumer credit, suggesting that the co-holding might arise as a result of rational financial behaviour. We consider the potential endogeneity of financial literacy.