Financing Retirement in the 2020s and Beyond: The Global Experience

Investigating the Introduction of a Fintech Advancement Designed to Reduce Limited Attention Regarding Inactive Saving Accounts - Data, Survey, and Field Experiment

Maya Haran Rosen (Hebrew University of Jerusalem)

Abstract: Lost and forgotten retirement savings accounts are increasingly becoming a problem. This paper uses proprietary data, survey data, and a field experiment to study the effect of two campaigns to raise awareness and direct attention to this issue among account holders. The first campaign is based on a fintech innovation – a centralized database, accessible via a website, created by the Israeli financial regulator to help individuals find and manage inactive retirement savings accounts. The website substantially lowered observation and information search costs for finding inactive accounts and was widely publicized. The second campaign utilized the information from the website to encourage individuals (via a tax exemption and an awareness campaign) to close small inactive accounts and avoid new minimum management fees that would gradually exhaust the savings over time. We show evidence that after the campaigns, inactive retirement accounts still only received limited attention. This is more pronounced for individuals with low socioeconomic status and low financial literacy. The results of a controlled field experiment indicate that interventions that provide similar information using a more personal interaction (face-to-face or video) can increase attention.

Amlan Ghosh (National Institute of Technology Durgapur, India)

Abstract: Unorganised sector workers constitute a major part of the employed population who are without any cover of social security in India. India estimated to have a total workforce of 450 million; out of this, 93 per cent of people working in the unorganised sector. We conduct a survey on Micro-Small and Medium Enteprises (MSME) workers in India during 2019- 2020 and finds that the workers are facing a financial stress due to low level of income and job security but there exists a positive relationship between financial literacy and willingness to save for retirement benefits among the unorganised sector workers in India. This research on the unorganised sector workers also brings out other critical socio-economic factors that positively correlate with old-age financial planning in India.

Amlan Ghosh, PhD in Finance and working as an Associate Professor at the Department of Management Studies, National Institute of Technology Durgapur, India and have more than 16 years of teaching experience. Before NIT Durgapur, he was at IBS Hyderabad, Hyderabad and Sikkim Central University, Sikkim.

His research interest is in the area of Financial Public Policy mainly in the areas of pension sector, insurance, banking, financial development, financial inclusion and Post offices. He has published papers in reputed journals such as The Geneva Papers on Risk and Insurance - Issues and Practice, Journal of Asia Business Studies, Journal of Financial Economic Policy, International Journal of Social Economics, International Journal of Economics and Financial Issues etc. Apart from that he has authored a book on insurance namely, “Life Insurance in India: Reforms and Impacts”. He is also a reviewer of different international/national journals such as Journal of Institutional Economics, IIMB Management Review, Asia Pacific Journal of Risk and Insurance (APJRI), Journal of Financial Economic Policy, International Journal of Productivity and Performance Management etc.

He has presented his research papers in different conferences such as World Finance Conference, World Finance & Banking Symposium, International Conference on Public Policy and Management, Asia Pacific Risk and Insurance Association (APRIA) annual conference etc.

He has conducted many FDPs and MDPs at NIT Durgapur and organisations, such as at Reserve Bank of India (RBI), Mumbai. He has conducted a Global Initiative of Academic Network (GIAN) course on "Analysing Public Policy Issues in India" in collaboration with Prof. Mukul Asher, National University of Singapore (NUS) at NIT Durgapur, sponsored by MHRD, Govt. of India in 2019.

A Sustainable, Variable Lifetime Retirement Income Solution for the Chilean Pension System

Olga Fuentes (Pension Regulator of Chile)

Abstract: There is a need in pension systems to significantly improve the level and stability of pension payments as pensioners age. The solution to address increased longevity and longevity risk should be not limited to increasing the take-up rate of annuities – explicit guarantees are costly in a low-interest rate environment, and lock-in of savings may not be in line with members' preferences. Our proposal is to develop a Sustainable, Variable Lifetime Retirement Income Solution in a more flexible and cost-efficient way. Recent developments favoring flexible products that are more suited to satisfy the needs and preferences of members are key for improving the pay-out phase. In this respect, we believe our tontine design proposal is a superior alternative compared to the ones already existing in the Chilean Pension System. Tontine-like arrangements offer a unique value proposition to address the global retirement challenge. Our retirement income proposal provides clear transparency and investment flexibility with higher expected income streams. It does not involve higher costs since there are no explicit guarantees and provides a means to offer longevity insurance even if insurers are unwilling to supply it. Several proposals are analyzed, including deferred pension arrangements and tontine-like solutions combined with existing pay-out products. Our proposal does not distort the annuity market; on the contrary, it complements it, and it is in line with the transition of many countries to include tontine-like longevity-risk sharing and collective elements in their defined-contribution designs.

Olga Fuentes is a pension and labor expert with extensive experience in the global research, regulation and supervision of pension and unemployment insurance systems. She is currently Head of Strategic Research and International Affairs at the Chilean Pension Regulator and was previously Deputy Chair of Regulation and Head of the Research Division. She is Vice-President of the International Organization of Pension Supervisors (IOPS) and the delegate of the Chilean government to the OECD Working Party of Private Pensions. She has collaborated with OECD and IOPS on many research papers. Dr. Fuentes is the Pension Regulator representative in the Chilean Green Finance Working Group, responsible for advancing in the incorporation of climate change into the investment risk management of institutional investors. She is member of the Global Advisory Board at PinBox Solutions for financial inclusion. Previously, she was Senior Advisor to the Minister of Finance between 2007 and 2009 following work as an Economist at the Central Bank of Chile in the area of International Finance and as a Research Analyst at a major Chilean Stock Broker. She has been a consultant for the IADB, speaker in international conferences, lecturer in economics and finance in Chile and the United States, and author of papers and articles in the areas of pensions including on investment, risk, financial education, experimental evaluations, unemployment insurance, labor, applied micro-econometrics and applied macroeconomics. She has a first degree in Economics and a Master’s degree in Finance from the University of Chile. She holds a PhD. in Economics at Boston University.

Gender Gap in Pension Savings: Evidence from Peru's Individual Capitalization System

Javier Olivera (Luxembourg Institute of Socio-Economic Research (LISER), and Pontificia Universidad Catolica del Peru (PUCP))

Abstract: We seek to contribute to the literature on gender pension gap by studying the case of Peru, a country where the main compulsory pension system is of an IRA type (the Private Pension System, SPP). Although there is an alternative public pension system (SNP) most of the new workers enrol into the SPP. We use representative samples of the non-retired population affiliated in the SPP, randomly selected from administrative registers in 2005, 2006, 2011, 2012, 2013, 2015, 2016, and 2019. The size of each year-sample is about 2% of the total number of affiliates in the corresponding year. The samples are random and stratified. We restrict the year-samples to individuals aged between 21 and 64, implying that we observe individuals born between 1946 and 1998. After pooling together all the year-samples, we obtain a total sample of 725,868 observations. Our data allows us to analyse gender gaps in pension balances along birth year cohorts and across the years of our period of analysis. According to preliminary results, on the one hand, we observe a decreasing gender gap among younger cohorts, which is in line with other findings in the labour market, but on the other hand, the length of time participating in the pension system increases the gap though the capitalization process.

Javier Olivera is a research scientist at the Luxembourg Institute of Socio-Economic Research (LISER) and full professor of economics at Pontificia Universidad Catolica del Peru (PUCP). He holds a PhD in economics from KU Leuven. Previously, he was a research fellow at the Institute for Socio-Economic Research at the University of Luxembourg and the Geary Institute at the University College Dublin (UCD) and worked for the Superintendent of Banking, Insurance Companies, and Pension Funds and the Ministry of Economy of Peru. His research interests include public economics, inequality, pensions, intergenerational transfers, ageing, and redistributive preferences. He has published several academic articles in journals such as Science, JEBO, Socio-Economic Review, Journal of Social Policy, and Journal of International Money & Finance; and in prestigious collective volumes such as the Handbook of Income Distribution (Elsevier) and National Wealth: What is missing, why it matters (Oxford UP).

Anita Mukherjee (University of Wisconsin-Madison)

Abstract: Retirement savings abandonment is a rising concern connected to defined contribution systems and default enrollment. We use tax data on Individual Retirement Accounts (IRAs) to establish that in 2017, 2.7% of 72.5 year-old account-holders in total abandoned $790 million; the median abandoned account held $5,400. Nearly all of these funds  remain with plans and are not sent to state unclaimed property. Regression discontinuity estimates show that abandonment is 10 times higher in automatic rollover IRAs, a type of default account. We nest our findings in a model of retirement savings featuring forgetting to derive implications for passive and active savers.

Anita Mukherjee, PhD, is an Assistant Professor of Risk and Insurance at UW-Madison's Wisconsin School of Business. Her research focuses on the impact of insurance, financial literacy, and legal policies on vulnerable populations, especially related to aging and health. She is a fellow of the TIAA Institute. She is also actively engaged with a number of social science units on campus, and is an affiliate of the Center for Financial Security, the Institute for Research on Poverty, the Center for Demography and Ecology, the Center for Demography of Health and Aging, and the University of Wisconsin Law School. She recently co-edited a special issue on Financing Longevity for The Journal of the Economics of Ageing.

Brett P Hammond (Capital Group)

Abstract: The literature on lifecycle model design, optimization and hypothetical solutions is impressive, but for the obvious application—target date funds—few practitioners seem to use lifecycle models for actual design and management and we have no extant analysis of how to do so. This paper evaluates a real-world use case by examining development of a new lifecycle model to serve an existing set of target date funds. A key finding is that lifecycle model development can and should be informed by questions and challenges arising from target date fund design and management. Questions include: how are outcomes affected by degrees of flexibility in the asset mix? How, if at all, should target date fund vintages be designed to account for labor income interruptions, unplanned lump sum withdrawals and other investor behavior? It turns out that solving for the lifecycle model challenges and for target date fund design involves a feedback loop: solutions and progress for one lead to progress for the other and vice versa. We illustrate how this process produced concrete glide path improvements that were implemented in 2021.

Brett Hammond, PhD, is a Research Leader at Capital Group. He has 20+ years of industry experience, gained in top tier global investment managers and research firms. Prior to joining Capital, Hammond directed applied indexing and modeling research teams at MSCI and held a number of positions at TIAA-CREF, where, as chief investment strategist, he worked on the creation of target date funds and inflation-linked bond products. He has published more than 30 articles and books on investing. He holds a PhD from the Massachusetts Institute of Technology and a bachelor's degree in economics and political science from the University of California, Santa Cruz.