The Colloquium, co-hosted by the ARC Centre of Excellence in Population Ageing Research (CEPAR) and the School of Risk & Actuarial Studies, UNSW Business School, is a unique annual event, bringing together academics (from economics, finance, actuarial studies and related disciplines), government and industry to discuss the latest research on pensions, superannuation and retirement.
Abstracts and speaker bios
Session 1: Pension Decisions
Households’ Heterogeneous Welfare Effects of Using Home Equity for Life Cycle Consumption
Jim Been (Leiden University, Netspar, The Netherlands)
Abstract: Using a life-cycle model and a representative sample of households, we analyse the extent to which using home equity leads to (heterogeneity in) welfare gains over the life cycle. The most policy-feasible option to borrow against 50% of home equity over the life cycle leads to median (average) welfare gains of 7% (11%). However, we find substantial heterogeneity with half of the households facing a welfare gain between 3% and 13%. Much of this heterogeneity is explained by heterogeneity in households’ income and (housing) wealth and less so by heterogeneity in their demographics or preferences for consumption smoothing and time.
Jim Been is an Assistant Professor in Economics at the Department of Economics at Leiden University and a Netspar Research Fellow. His research interests include consumption and savings decisions of households. In particular, he studies how consumption responds to economic shocks and the extent to which households can insure against such shocks. This research has been published in journals such as The Review of Economics and Statistics, The Journal of Human Resources, and the Journal of Pension Economics and Finance.
Private Information and Risk Preferences in the Annuity Market: Evidence from Sweden
Abigail Hurwitz (The Hebrew University of Jerusalem, Israel)
Abstract: We study how risk type and risk preferences simultaneously shape demand for life annuities, using a comprehensive data-set of retirees' payout choices from a major Swedish occupational pension company, combined with administrative data. We construct proxies for risk type and risk preferences, from financial and health-related domains. Using a quasi-experimental design that exploits individuals' responses when they receive a malignant cancer diagnosis around retirement, we identify a significant causal effect of a change in risk type on the decision to annuitize. This effect is generated by the financially risk averse and health-related risk tolerant individuals. We further demonstrate that our results persist when proxying for risk type using parental longevity information.
Dr. Abigail Hurwitz is an Assistant Professor at the Hebrew University of Jerusalem. Her research is dedicated to long term saving, consumption and annuity choices. She seeks to better understand financial behaviour in order to influence policy as well as to develop and promote savings products and to increase the demand for annuities. Hurwitz has recently worked on projects focused on mandatory annuitization in Israel. Her research also focuses on life and health subjective perceptions and how to influence them in order to enhance saving behaviour. Hurwitz holds a Ph.D. in Finance as well as an M.A. and B.A. in Business and Economics from the Hebrew University of Jerusalem. She was previously a Postdoctoral visiting scholar at the Wharton school of the University of Pennsylvania.
Financial Advice and Retirement Savings
Markus Schmid (University of St. Gallen, Switzerland)
Abstract: We use a unique dataset from a large retail bank to examine the impact of financial advice on personal retirement savings. We document that retirement-related financial advice is associated with an increase in tax-exempt retirement accounts and equity investments, both at the extensive as well as the intensive margin. Our analysis suggests a causal link. We find no evidence that advisors particularly help typically disadvantaged clients (female, poorer, less-educated). Additional investments into retirement accounts and equities primarily come from external sources and checking accounts. The bank also benefits from the provision of retirement-related financial advice.
Markus Schmid is a Professor of Corporate Finance at the University of St. Gallen and a Faculty Member of the Swiss Finance Institute (SFI). He studied economics and business administration with an emphasis on corporate finance, financial economics, and international economics at the University of Basel and holds a PhD in finance also from the University of Basel. He spent a year as a research scholar at Leonard N. Stern School of Business, New York University, and another year as a post-doc at the Department of Finance of the University of Basel, before becoming an Assistant Professor of Finance at the Swiss Institute of Banking and Finance at the University of St. Gallen. Before his current appointment, he was an Associate Professor of Finance at the University of Mannheim. His research interests are mainly in the areas empirical corporate finance, corporate governance, and household finance. His research has been published in the Review of Financial Studies, Journal of Financial Economics, Review of Finance, Management Science, and Journal of Financial Intermediation, among others. From 2010 to 2012 he was co-editor and as of 2012 he is the managing editor of the Financial Markets and Portfolio Management Journal.
Understanding Fund Members' Behavioural Responses to Market Volatility
Inka Eberhardt (CEPAR, UNSW Sydney, Australia)
Abstract: Preliminary analysis of accumulation member data from a large Australian superannuation fund shows that of the 3% of members who made a switch between February and April 2020, 8 in 10 switched to a more defensive portfolio. To date, the forgone investment earnings are up to A$30,000 for an average fund member. This study uses an online stated choice experiment to explore the switching behaviour of super fund members in default investment options when faced with volatility of investment returns and investigates the impact of alternative communication treatments designed to help members overcome their behavioural biases and thereby address inappropriate switching. We compare the behaviour of four groups: those who received a re-assuring message to not switch; those who received the same message but where share market returns were less salient in the experiment; those who received projections about their account balance and income at retirement; and those who saw a goal tracker that put the account balance and income projections in perspective of the participants’ individual goal. We find that portfolio stabilizers are financial literacy, numeracy, and risk tolerance. Choice members who are only invested in one option are also less likely to switch investments in markets with high volatility, possibly due to confidence in their previous choice. Regarding facilitators of change, we find that participants who received the projections and goal tracker are more likely to change portfolios in periods with negative market shocks. Participants who looked for more information about their portfolio performance are also more likely to change investments. Our findings show that activating engaged and unengaged members can lead to change with positive and negative consequences. Communications have to be tested in order to lead to positive fund member outcomes.
Inka Eberhardt is a CEPAR Research Fellow, located in the UNSW Business School. She joined the Centre in October 2018. Inka is interested in the interface between individual behaviour and pension systems. She uses field experiments and online surveys to research the effectiveness of pension communication on savings and investment behaviour. The aim of her research is to improve communication and to enable consumers to make better choices.
Session 2: Retirement and Adequacy
Health and Labour Market Effects of an Abrupt and Unanticipated Rise in Women Retirement Age. Evidence from the 2012 Italian Pension Reform.
Chiara Ardito (Torino University & Epidemiology Unit, Italy)
Abstract: Population ageing is prompting governments around the world to increase the retirement age. However, not all workers may be equally able to extend their working lives as they may face adverse health consequences. In this article, we examine the health and labour market effects of an Italian pension reform that suddenly increased the normal retirement age for women by three to seven years. To do this, we use linked labour and healthcare administrative data, jointly with survey data and difference-in-difference methods. Our results show that the reform was effective in postponing retirement, as pension claiming dropped by 25 percentage points (pp) while the probability of working increased by around 11 pp during the ages 60 to 63. However, there were side effects as the reform also pushed a relevant fraction of women out of the labour market, into unemployment and disability pension, while increasing sick leaves among those who continued to work. The reform also increased hospitalization related to mental health and injuries among affected women. These side-effects were concentrated in the short-term and driven by those with previously low health status. Our results suggest that undifferentiated increases in pension age, independently of the health condition of the worker, might harm the health and the working capacity of more vulnerable workers.
Chiara Ardito is currently a post-doctoral researcher at the Department of Economics and Statistics of University of Torino and a research fellow at Netspar and LABORatorio Revelli. She earned a PhD in Economics from University of Torino and Collegio Carlo Alberto with a thesis on the economic and health consequences of pension reforms and unfavourable working conditions for aging workers. Her research interests include ageing workforces, labour and health economics, evaluation of programme interventions using non-experimental methods, and the relationship between work, socio-economic conditions, and health. She teaches Econometrics and Statistics in graduate and undergraduate courses, and she is currently the head of the University of Torino Research Unit within the Italian Ministry of Health project “The health equity impact of increasing age of retirement: the contribution of Italian longitudinal Studies”.
Labour Supply and Well-Being Among Older Adults: The Separate Effects of Pension Access and Statutory Retirement Age
Xuan Zhang and Joanne Tan (Singapore Management University, Singapore)
Abstract: By taking advantage of the separate statutory retirement age and pension access age in the Singapore context, we provide new evidence on how labour supply and well-being change upon reaching the statutory retirement age and pension access age among older individuals. At the aggregate level, the statutory retirement age greatly reduces labour supply and household income, while normal pension access has a limited impact on labour supply and household income. However, early pension access after turning age 55 enables an increase in self-employment and lowers the unemployment rate. Heterogeneity analyses demonstrate that the spike in retirement at the statutory retirement age is driven by individuals with medium and high pension wealth, while the switch from unemployment to self-employment at age 55 is mainly driven by individuals with low pension wealth.
Dr Xuan Zhang is Assistant Professor of Economics at Singapore Management University (SMU). She obtained her PhD in economics from Brown University. Her main research fields are health economics, labour economics, and public economics, with interests in health insurance programs, physician behaviour, prescription drugs, labour supply and well-being of the older adults. She has published papers with American Economics Review (forthcoming), Journal of Public Economics, Journal of Development Economics, etc.
Ageing, Inadequacy and Fiscal Constraint: The Case of Thailand
Phitawat Poonpolkul (Puey Ungphakorn Institute for Economic Research - PIER, Thailand)
Abstract: Over the coming decades, many developing countries are set to face unprecedented challenges. While their population is aging extremely fast, the old-age income supports are inadequate and fiscal resources are limited. This study develops an overlapping generations model (OLG) with formal and informal sectors for a middle-income country. Besides aging population structure overtime, the model incorporates common features of developing countries -- a sizable informal sector, a connectedness between the formal and informal sectors, and inadequate pension provisions. The households are heterogeneous with respect to their education, formality status, and survival probabilities. The model is calibrated to Thailand’s economy where the government budget structure is based on the country’s fiscal historical data, and the basic universal pension scheme and Social Security scheme are realistically specified. We assess the costs of these two schemes under three long-run scenarios : (i) introducing indexation to the currently non-indexed schemes; (ii) triple increasing the basic pension scheme; and (iii) specifying the basic pension to proportionally decrease with the Social Security benefits. Using a consumption tax to quantify the costs, the consumption tax must be increased by three, eleven and nine percentage points from the current level, respectively. The Social Security scheme is projected to be unsustainable, with its fund depleted in 2045. Without any reform and benefit cuts, the scheme requires a drastic increase in the contribution rate. Welfare gains and losses across household types and redistributive impacts of the reforms are discussed.
Phitawat Poonpolkul is a principle researcher at Puey Ungphakorn Institute for Economic Research, the Bank of Thailand. He is interested in examining various economic impacts from demographic changes using a heterogenous-agent Overlapping Generations (OLG) model. He is also collaborating with the Centre of Excellence in Population Ageing Research (CEPAR) in developing an OLG model for emerging markets.
The Limits of Parametric Reforms in Sustaining the Algerian Retirement System in front of Population Ageing
Farid Flici (Research Center in Applied Economics for Development - CREAD, Algeria)
Abstract: The accelerated ageing of the Algerian population threatens seriously the financial sustainability of the retirement systems which is working following the Pay-As-You-Go principle. Thus, reforms are to be scheduled for the near future to correct the resulting financial balances. Many reform options exist at different costs which can consist of a simple parametric reform, a shift to a fully funded system, or an implementation of a complementary fully funded pillar. But before all, it is worthy to investigate if the less costly option (parametric reforms) can allow maintaining the sustainability of the system in a changing environment. In this paper, we carry out a multi scenarios analysis crossing the different scenarios about the possible parametric reform actions combined with the different possible socio-economic scenarios. The results show that within the most favourable scenarios about the evolution of the environment, parametric reforms (heavy ones) could be able to allow the Algerian retirement system to resist till 2040 only. Systemic reforms need to be scheduled for 2040 and beyond.
Farid is an Actuary with a PhD in Statistics. He is the managing director of the Social Economics Department at the Research Center in Applied Economics for Development (CREAD, Algeria), Expert at the Algerian National Committee for Population, and member of the National Council of Statistics. Farid is interested in studying longevity, health, and aging as well as their impact on retirement sustainability and social security expenditures. Personal page: https://farid-flici.github.io
Session 3: Pension Finance and Choice Architecture
Intergenerational Sharing of Unhedgeable Inflation Risk
Damiaan Chen (University of Amsterdam, Netherlands)
Abstract: We explore how members of a collective pension scheme can share inflation risks in the absence of suitable financial market instruments. Using intergenerational risk sharing arrangements, risks can be allocated better across the various participants of a collective pension scheme than would be the case in a strictly individual- or cohort-based pension scheme, as these can only lay off risks via existing financial market instruments. However, financial markets are incomplete and, therefore, unable to handle all the different types of risks confronting pension fund participants. Allowing for the intergenerational sharing of these risks enhances their welfare. In view of the sizes of their funded pension sectors, this would be particularly beneficial for the Netherlands and the U.K.
Damiaan Chen (34 years old) has more than 5 years of experience as a Senior Supervisor Specialist at the Dutch Central Bank and as a Postdoc Researcher at the University of Amsterdam. He specializes in combining his knowledge of quantitative modelling with supervisory practice and policy. Damiaan is enthusiastic and passionate about his work by finding solutions to problems that contribute to improving pension schemes. In his spare time Damiaan likes to play the piano and to do sports such as hockey and squash.
Do Pension Funds Reach for Yield? Evidence from a New Database
Maximilian Konradt (Geneva Graduate Institute, Switzerland)
Abstract: How do institutional investors adjust to low interest rates? This paper studies the financial risk-taking behaviour of pension funds over two decades. I assemble a comprehensive new database of pension funds’ portfolio holdings, encompassing more than 100 individual funds from 14 advanced economies. One central stylized fact is that pension funds’ balance sheets have become riskier over the recent period of low interest rates. Funds based in Europe tilt their portfolios towards public equities, while North American and Asian funds invest more in alternative asset classes. The empirical analysis suggests that lower domestic risk-free rates are an important driver of this trend. Pension funds actively increase their risky asset exposure in response to changing interest rates, measured through short-term rates and monetary policy surprises. I find that this reach for yield is most pronounced for funds that are well funded and hold fewer risky assets initially. Moreover, the effect is exacerbated during periods where risk-free rates are lower. As a result, I document that European pension funds reach for yield more aggressively, especially in the years following the 2008 financial crisis.
Maximilian Konradt is a 4th-year PhD student in International Economics at the Geneva Graduate Institute of International and Development Studies (IHEID). His research focuses on international finance and international macroeconomics, climate policy, as well as political economy.
Choice Architecture Improves Pension Selection
Paulina Granados (Superintendencia de Pensiones, Chile) and Denise Laroze (Universidad de Santiago de Chile)
Abstract: Consumers in Chile of private and semi-private pension systems are not selecting the pension providers that give them the largest Net Present Value. Regulators present retirees with a comparison report of pension plan offerings ranked by amount offered and the risk classification of the provider. A field experiment implemented in Chile explores alternative presentations of provider performance. We treat respondents by modifying the status quo information “package” (that exactly replicates what is currently provided by the regulator). Two design choices clearly enhanced consumer welfare in this experiment: Reducing the amount of information improved choice – specifically eliminating the risk profiles of providers lead to better decisions by our respondents. Second, adopting a loss frame also resulted in respondents selecting providers that generated higher returns. These gains from modifying information presentation were considerably higher for those with lower levels of financial literacy. This study is conducted in association with the Superintendencia de Pensiones (SP) and the Comisión para el Mercado Financiero (CMF), two of the public offices that oversee the pensions market in Chile.
Paulina Granados is the Head of Research at the Pension Regulator Authority of Chile since 2017, acting also as Executive Secretary of the Asociación Internacional de Organismos de Supervisión de Fondos de Pensiones (AIOS). Before joining the Pension Regulator Authority of Chile, she worked at the Employment Labour and Social Affairs Directorate of the OECD (2011-2017), at the Central Bank of Chile (2002-2005) and as Executive Director of Amnesty International, Chilean Section (1999-2001). She holds a PhD in Economics from the European University Institute (Italy). She is Industrial Engineer and Master in Applied Economics from Universidad de Chile, Master in Economics from the University of Warwick (UK) and a Master of Research in Economics from the European University Institute (Italy).
Session 4: Old Age Security
The Age Gap in Mortgage Access
Natee Amornsiripanitch (Federal Reserve Bank of Philadelphia, USA)
Abstract: This paper uses data on more than 19 million mortgage applications to study the relation between applicant age and mortgage application outcomes. Conditional on a comprehensive set of applicant, property, and loan characteristics, mortgage applications submitted by older borrowers face monotonically higher rejection probabilities. The age effect appears even between individuals whose ages differ by only one year. Loan officers' attitude towards mortality-related default risk is a key contributor. The same empirical relations do not hold between applicant age and rejection by automated underwriting systems. The age effect on rejection by loan officers is larger for subgroups that face higher mortality risks (e.g., older individuals, men, and individuals who live in low-life-expectancy counties). Consistent with a risk-based explanation, similar empirical relations appear between applicant age and interest rate spread. Overall, this paper shows that older individuals systematically face higher barriers to credit access because mortality risk is priced in credit markets.
I am a research economist at the Federal Reserve Bank of Philadelphia. I hold a Ph.D. in Financial Economics from Yale School of Management. I completed my doctoral studies under the supervision of Gary Gorton, Andrew Metrick, and Paul Goldsmith-Pinkham. Prior to graduate school, I worked as a research associate for Paul Gompers at Harvard Business School and as an associate at Charles River Associates. Personal Webpage: https://sites.google.com/view/natee-amorn
Do People Successfully Manage Their Nest Eggs Through Retirement? Evidence from the Evolution of US Household Balance Sheets
Jason Seligman (Investment Company Institute, USA)
Abstract: This paper investigates how resources accumulated in working years are managed over retirement using public Health and Retirement Study (HRS) data representing 15.2 million seniors in the United States. We build wealth estimates from specific balance sheet components: Social Security, DB and DC pension, IRA, annuity, net home equity, and other assets. We construct higher fidelity estimates of DC wealth than are readily available to researchers for select years using detailed data on current balances from prior employment. We find: (1) Social Security plays a fundamentally important and complementary role in the US retirement system; (2) an important consideration for estimates of wealth derived from income streams (including Social Security) is that these mechanically decline as mortality draws nearer, biasing changes in absolute measures of wealth downward. Nevertheless, we find (3) people largely hold sufficient wealth to maintain their relative standards of living. However, (4) a range of experiences do exist in retirement, including hardship. Investigating deciles of the wealth distribution, which help to control for declines in income-based wealth measures over time, we find that (5) those experiencing hardship do not tend to fall from high- or middle-wealth deciles to lower ones as they age, but instead tend to be enduring longstanding hardship.
Jason S. Seligman is a Senior Economist with the Investment Company Institute (ICI). Prior to joining ICI, his career has included work in government for the U.S. Department of the Treasury, and White House Council of Economic Advisers. Seligman has held academic faculty positions at The Ohio State University and the University of Georgia. Seligman’s research affiliations include service for the TIAA Institute, the Mercatus Center at George Mason University, the Center for Financial Security at the University of Wisconsin. He is broadly published, with scholarly contributions to the literature in social insurance, private pensions, individual savings, and financial literacy, along with articles focused on finance and sovereign debt. He is a member of the National Academy of Social Insurance, American Economics Association, International Institute of Public Finance, and the National Tax Association. Seligman earned his B.A. from the University of California at Santa Cruz and Ph.D. from the University of California, Berkeley, both in economics.
Experiments on Targeted Wealth Management Strategies for Prospect Theory Investors
Jordan Moore (Rowan University, USA)
Abstract: Suppose an investment manager has the discretion to allocate client account inflows and outflows over time. Inflows include client or employer contributions and outflows include management fees or client withdrawals. If her client has prospect theory preferences over gains and losses, and anchors these gains and losses to the previous account balance, then the manager's optimal timing of inflows and outflows can increase client satisfaction. The client increases his savings rate and expected retirement wealth and the manager earns higher management fees. The optimal strategies allocate outflows to offset portfolio gains and allocate inflows to offset portfolio losses. I administer a laboratory experiment on Amazon Mechanical Turk to test whether subjects prefer holding portfolios with management fees that are optimally structured to target prospect theory preferences. Subjects invest 13% more of their wealth in equities when the equity fund management fees are structured to target prospect theory preferences. This difference is not explained by demographic characteristics and psychological traits known to influence financial decision making. These findings are particularly relevant to the question of how to structure pension plans and how to provide financial advice to retirees on optimal decumulation strategies.
Jordan Moore earned his undergraduate degree from MIT and began his career as an equity options market maker on the American Stock Exchange in New York City. For twelve years, Jordan worked as a proprietary trader, including overseas assignments with Susquehanna International Group in Sydney and with Deutsche Bank in London. Jordan completed his Ph.D. in Finance from Simon Business School, University of Rochester. His primary research objective is to use insights from behavioral economics to improve financial outcomes for individual investors.
CALL FOR PAPERS
Expressions of interest to be included on the program have closed.