The 31st Colloquium on Pensions and Retirement Research hosted an online session via Zoom on 7 December 2023, sponsored by the International Pension Research Association (IPRA).
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 academia, government and industry to discuss the latest research on pensions, superannuation and retirement.
Recordings of the IPRA Online Session:
Program schedule, 7 December 2023
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Time in Sydney |
7 December, ONLINE |
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8.00-8.05pm |
Welcome and Opening Remarks |
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8.05-9.05pm |
Session 1: Retirement Benefits |
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9.05-9.10pm |
Break |
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9.10-10.30pm |
Session 2: Pension Design |
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10.30-10.40pm |
Break |
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10.40pm-12.00am |
Session 3: Pension Decisions |
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12.00-12.10am |
Break |
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12.10-1.30am |
Session 4: Pension Systems |
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1.30am |
Closing remarks |
Detailed program of the online session:
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ONLINE SESSION PROGRAM (subject to minor changes) |
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DAY 3: 7 December 2023 (AEDT) Online via Zoom |
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Time (AEDT Time zone) |
Session details |
Presenter/Chair |
Presenter’s Time Zone |
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8.00-8.05pm |
Welcome & Opening Remarks |
Hazel Bateman (CEPAR; IPRA; UNSW Sydney) |
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8.05-9.05pm |
Session 1: Retirement Benefits |
Chair: John Piggott CEPAR; IPRA; UNSW Sydney) |
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8.05-8.25pm |
Andre Lot (University of Sydney) |
10.05-10.25am on 7 December CET (UTC+1): 10 hours behind Sydney |
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8.25-8.45pm |
Anticipated and Experienced Regret in Annuity Choices: An Experimental Study |
Koen van Boxel (Leibniz University) |
10.25-10.45am on 7 December CET (UTC+1): 10 hours behind Sydney |
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8.45-9.05pm |
On which Socioeconomic Groups do Reverse Mortgages have the Greatest Impact? Evidence from Spain |
M. Mercè Claramunt (University of Barcelona) |
10.45-11.05am on 7 December CET (UTC+1): 10 hours behind Sydney |
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9.05-9.10pm |
Break |
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9.10-10.30pm |
Session 2: Pension Design |
Chair: Dariusz Stanko (IOPS; IPRA) |
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9.10-9.30pm |
Maria Fernanda Toledo, and Ximena Quintanilla (Superintendence of Pensions Chile) |
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9.30-9.50pm |
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Ricky Kanabar (University of Bath; Netspar) |
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9.50-10.10pm |
Emma Suzanne van Aggelen (Tilburg University; KU Leuven; Netspar) |
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10.10-10.30pm |
Babul Hossain (International Institute for Population Sciences (IIPS)) |
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10.30-10.40pm |
Break |
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10.40pm-12.00am |
Session 3: Pension Decisions |
Chair: Mike Orszag (WTW; IPRA) |
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10.40-11.00pm |
Are Risk Preferences Stable for Impactful Financial Decisions? |
Jorgo Goosens (Radboud University Nijmegen; Tilburg University; APG; Netspar) |
12.40-1.00pm on 7 December CET (UTC+1): 10 hours behind Sydney |
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11.00-11.20pm |
Improving Pension Information: Experimental Evidence on Learning Using Online Resources |
Denise Laroze (Universidad de Santiago de Chile) and Paulina Granados (Superintendencia de Pensiones Chile) |
9.00-9.20am on 7 December CLST (UTC-3): 14 hours behind Sydney |
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11.20-11.40pm |
Pieter Verhallen (North Carolina State University; Netspar) |
7.20-7.40am on 7 December EST (UTC-5): 16 hours behind Sydney |
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11.40pm-12.00am |
Quantifying the Insurance Effects of Japanese Social Insurance Policies on Household Structure |
Charles Leung (City University of Hong Kong) |
8.40-9.00pm on 7 December HKT (UTC+8): 3 hours behind Sydney |
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12.00-12.10am |
Break |
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12.10-1.30am (8 December) |
Session 4: Pension Systems |
Chair: Hazel Bateman (CEPAR; IPRA; UNSW Sydney) |
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12.10-12.30am |
Fan Yang (McGill University) |
8.10-8.30am on 7 December EST (UTC-5): 16 hours behind Sydney |
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12.30-12.50am |
Dynamic Allocation Strategy with Retirement Bonds: The Case of Brazil |
Arun Muralidhar (AlphaEngine Global Investment Solutions) |
7.30-7.50am on 7 December CST (UTC-6): 17 hours behind Sydney |
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12.50-1.10am |
Xincheng Qiu (Arizona State University) |
6.50-7.10am on 7 December MST (UTC-7): 18 hours behind Sydney |
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1.10-1.30am |
Eduard Ponds (Tilburg University; APG Asset Management) |
3.10-3.30pm on 7 December CET (UTC+1): 10 hours behind Sydney |
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1.30am |
Closing Remarks |
Hazel Bateman (CEPAR; IPRA; UNSW Sydney) |
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Speaker bios and abstracts
Session 1: Retirement Benefits
Longevity Pessimism, Misinformation, and Pension Choice
Andre Lot (University of Sydney)
Abstract: To determine the value of a pension, individuals need to consider their survival risk. In this paper, I first elicit survival probabilities for a broad set of target ages, using a representative panel of the 18-70 year-old Swiss population. I document a systematic survival belief bias, which is the stylized fact that individuals underestimate their survival probabilities (compared to actuarial life tables). Then, I show that incorrect information about longevity in general is a substantial component of this bias. Next, I implement an incentivized experiment that requires subjects to make risky pension choices, in which payoffs are not affected by participants' own longevity. I find that longevity pessimism induces earlier and less risky choices about the timing of pension benefits, under annuity or lump-sum pension schemes. Finally, I show that happiness and satisfaction have an indirect effect on pension choices through the channel of longevity pessimism.
Bio: Andre Lot has recently submitted his PhD thesis in Finance to the Norwegian School of Economics and will soon join the University of Sydney Business School. His research focuses on empirical and experimental household finance. He has been currently working on individual retirement financial decision-making, on topics of longevity beliefs, liquidity and precautionary savings, and tax-incentivized retirement investment schemes.
Anticipated and Experienced Regret in Annuity Choices: An Experimental Study
Koen van Boxel (Leibniz University)
Abstract: In this study, we investigate experimentally the role of anticipated and experienced regret in the decision to purchase life annuities. Our experiment focuses on a set of offered annuity contracts, with varying principal protected components and two feedback treatments. Our findings suggest that people prefer principal protection in general and that regret averse present lower demand for annuities. We also show, that those regret averse individuals tend to make less extreme annuity choices. We further find, that all participants invest more in annuities if they can customize the principal protected component, and that for all of them receiving feedback sequentially reduced the demand for annuities. Yet, sequential feedback harms regret averse individuals more, as they experienced more regret.
Bio: Koen van Boxel has been working as a PhD-student and research associate at Leibniz University Hannover in Germany since October 2022. Before this, he got his master’s degree in financial economics at Radboud University Nijmegen, the Netherlands, as well as a master’s degree in environmental economics from the Swedish Agricultural University in Uppsala, Sweden. He mainly focuses on behavioral economics and use of experimental methodology. Some projects he has been working on include the use of (nature-related) images in mutual fund investment decision-making, as well as the current project on annuity investment decision making and feelings of regret.
On which Socioeconomic Groups do Reverse Mortgages have the Greatest Impact? Evidence from Spain
M. Mercè Claramunt (University of Barcelona)
Abstract: We assess the effects that reverse mortgage contracting has on family finances over the lifetime of a family according to the socioeconomic group to which it belongs. We used a stochastic model with a double source of randomisation, survival and entry into dependency, and applied it to Spanish families based on data from the 2017 Spanish Survey of Household Finances. One conclusion indicates that immediate and long-term effects are very different depending on the group, being higher for families that, a priori, would least need the monetary supplement provided by reverse mortgages, according to the indices defined in this paper
Bio: M. Mercè Claramunt has a PhD in Economics and Actuarial Science. She is a professor in the Department of Economic, Financial and Actuarial Mathematics of the UB. She is lead investigator of the Actuarial and Financial Modelling Research Group and Presidentof the Scientific Committee of the Observatory of European Complementary Social Pension Plans.
SESSION 2: Pension Design
Gender Gaps in the Chilean Pension System
Maria Fernanda Toledo, Ximena Quintanilla, and Paulina Granados (Superintendence of Pensions Chile)
Abstract: The gender dimension is fundamental in the design, implementation, and evaluation of public policy. In the case of the Chilean pension system, this has been an aspect considered in all the reform processes or reform projects since the comprehensive reform of 2008. Therefore, it is important to systematically monitor the gender dimension in the system and to analyse the gender gaps both in the results of the system and in the main determinants.
This document seeks to delve into the analysis of gender gaps in the pensions’ system. The analysis focuses on two indicators: the probability of contributing to the system and the accumulated balances for pension, finding that when labour market variables are considered, the effect of gender disappears or decreases significantly. In addition, analysis of the evolution of the gender gap in the accumulated balances is carried out, finding that, although the gap has decreased through the cohorts and over time, it is maintained through all ages, and there would even be a particular pattern in the case of young people for whom the gap starts out relatively high.
Although it is shown that the gap has improved, it has not disappeared.
A future challenge for this study will be to complement the analysis with other socioeconomic variables such as education and additional labour market variables, and even factors related to family structure and care systems, which we know determine gender differences.
Bios:
María Fernanda Toledo is a researcher for the Research Division of the Pension Regulator Authority of Chile since 2015, focusing on topics related to the pension system, participation in the system, its benefits, and the solidarity pillar. She has also been involved in the analysis of the different pension system reform proposals in the past eight years. Before joining the Pension Regulator, she worked at the research departments of the Education Ministry, the Finance Ministry and the Service for the Prevention and Rehabilitation of Substance and Alcohol Abuse. She holds a master’s in economics from the Pontificia Universidad Católica de 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).
Ximena Quintanilla is an economist from the University of Chile and holds a PhD in Economics from University College London. She has undertaken consultancies for the World Bank on social protection topics, worked for the Institute of Fiscal Studies in London on development economics, worked for the Undersecretary of Social Security in Chile and for the Superintendence of Pensions in Chile. In the latter, Ximena has analysed the extent to which different factors affect pension outcomes, the drivers for switching pension providers, the gender gaps within pension system and has carried out experimental evaluations to study the effect of different information sets on pension choice. Further, as head of the Research Division of the Superintendence, she has led the last two updates of the regulatory mortality tables applied to the pension system, which are used both to calculate benefits and reserves. As a senior member of the Superintendence of Pensions, she has been involved in several pension reform proposals.
‘Relabelling’ of Individual Early Retirement Pension in Finland: Application and Behavioural Responses using Finnish Register Data
Ricky Kanabar (University of Bath; Netspar)
Abstract: Using rich Finnish population level registers, we examine the impact of fusing a flexible early retirement pathway with a more stringent pathway, without changing eligibility conditions, so called ‘relabelling’, on individual application behaviour. Our findings show that among affected cohorts the likelihood of applying for (successfully claiming) disability-related early retirement declined by 1.8 (1.5) percentage points equivalent to a relative drop of approximately 37% (39%) following the reform. Individuals with below tertiary level education and stronger lifetime labour market attachment exhibit a stronger behavioural response to the reform. We find tentative evidence of programme substitution to early retirement pathways designed to keep individuals in the labour market albeit on a part time basis. Our findings suggest that social norms and lack of awareness associated with early retirement pathways can strongly influence application behaviour even when eligibility conditions remain unchanged, offering policymakers novel ways to extend working lives.
Bio: Dr Ricky Kanabar is Associate Professor of Social Policy at the University of Bath, a Fellow at Netspar (Tilburg), an Affiliate at CEPAR (Australia), and a Research Affiliate, MiSoc (Essex).
Reform of the Dutch Pension System: A Legal Comparison of the Dutch and Australian Occupational Pension System
Emma Suzanne van Aggelen (Tilburg University; KU Leuven; Netspar)
Abstract: The Netherlands is reforming its pension system. On 30 May 2023 the Dutch government adopted the New Pension Act. This New Pension Act came into force on 1 July 2023. The transition process must be completed by 2028.
With the implementation of this act, the Dutch pension system will undergo fundamental changes. For example, defined benefit schemes will be abolished and a new type of defined contribution pension contract will be introduced. It is important to note that all accrued benefits will be converted into DC. However, despite the upcoming pension reform, some elements of the current pension system will remain unchanged.
In this presentation the Dutch pension reform and, in particular, the New Pension Act are being described from a legal perspective. Some key aspects of the new pension system are outlined and the purpose of the pension reform is discussed. In addition, a look will be taken at the Australian pension system. A comparison is made between the Australian and Dutch pension system in terms of pension design, taking into account the recent changes to the Dutch pension system.
Bio: Emma Suzanne van Aggelen obtained her doctoral degree at the Catholic University of Leuven. During her PhD she specialized in pension law. As a postdoctoral researcher at the University of Tilburg (Fiscal Institute Tilburg), she conducts research in the field of pension law and tax law. She is also research fellow at the KU Leuven (Institute of Social Law) and a research fellow of Netspar.
Economics of Widowhood Mortality in Adult Women in India: Role of Paid Work, Pension and Household Economic Status
Babul Hossain (International Institute for Population Sciences (IIPS))
Abstract: The economic consequence of widowhood on health is well-established, demonstrating that poorer economic status can significantly modify health outcome even the risk of mortality. However, empirical evidence are restricted only for the developed countries. Thus, this study assesses the roles of economic factors (paid work, pension and household economic status) on the mortality of widows in broad age groups from India. We used two waves of the India Human Development Survey (IHDS), a nationally representative prospective dataset in India for 42,009 women (married and widows) aged 25 years and above from IHDS wave 1 whose survival status was observed between two waves. Further, 6,953 widows were considered for sub- sample analysis in this study. Logistic regression and propensity score matching (PSM) applied to understand the association and causality between economic factors and mortality for widows. Poor household status, paid regular work and receiving a widowed pension were significantly associated with lower mortality for young widows, while unpaid and paid regular work was a significant linked with mortality for old widows. The result of causal inference suggests that receiving a widows' pension had a no significant impact on mortality for both young and old widows, while engaging in paid regular work significantly reduced the mortality of old widows. These findings suggest that paid employment have a protective impact by reducing mortality among widows in India.
Bio: I am a Doctoral Fellow in population studies at the International Institute for population sciences, Mumbai, India. I am using quantitative methods to study gender, health and social inequality. Most of my research focuses on how gender and social identity like marital status affect health inequality across different phases of individual life in India.
SESSION 3: Pension Decisions
Are Risk Preferences Stable for Impactful Financial Decisions?
Jorgo Goosens (Radboud University Nijmegen; Tilburg University; APG; Netspar)
Abstract: Numerous methods to elicit people’s risk preferences have evolved and evidence suggests that risk preferences may vary considerably when measured with different methods. We test this “risk elicitation puzzle” amongst 1600 pension fund members for which the stakes are large and their decisions are impactful. Based on a within-subject design using three well-known risk preference elicitation methods tailored to the pension domain, we find that the different methods give rise to varying estimates of risk preferences at the individual and aggregate level. We perform an in-depth comparison of the three risk elicitation tasks using simulation exercises. The observed heterogeneity in risk preference estimates across elicitation methods is similar to the heterogeneity arising from independent random draws from the choice distributions in the experiment. Observed risk preference instability across methods is more prevalent for individuals that are older, blue-collar workers, and lower income earners.
Bio: Jorgo Goossens is Assistant Professor in Finance at Radboud University, Institute for Management Research. He is also a Visiting Researcher at Tilburg University, Researcher at APG Asset Management, and a fellow of Netspar. Parts of his research are funded by grants from the NWO, Netspar, and GRI. His research areas cover (behavioural) asset pricing, macro finance, experimental finance, and household finance. Most of his work focusses on non-standard preferences, asset pricing, and household finance. Jorgo holds BSc. and MSc. degrees in Econometrics from Tilburg University. Additionally, he holds a MSc. degree in (teaching) mathematics from Eindhoven University. Finally, he holds a MPhil. Degree in Finance from Tilburg University and he received his Ph.D. degree in Finance & Econometrics from Tilburg University in February 2023.
Improving Pension Information: Experimental Evidence on Learning Using Online Resources
Denise Laroze (Universidad de Santiago de Chile) and Paulina Granados (Superintendencia de Pensiones Chile)
Abstract: When planning for retirement, deciding what to do with one's pension funds is a high-stakes, one-shot decision, often written in technical jargon that few people understand. It is therefore not surprising that workers experience an important level of stress during the whole pension process, and many of them even prefer to pay for advice or miss out on social benefits they are eligible for because they do not understand the retirement process. We argue that the learning process can be eased by providing information in video format (vs the standard text) and by changes to the user interface of the websites on which individuals learn about their pension options. The results of both a field experiment with 50 to 70-year-old participants and a lab experiment on university students suggest that videos are significant and substantively more effective in increasing the number of correct responses to a retirement comprehension test. The significance of this effect is robust to changes in the content of the videos, with equivalent impact in private and public pension schemes. The study is conducted in association with the Chilean Superintendencia de Pensiones and experts from the Instituto de Previsión Social.
Bios:
Denise Laroze is an Associate Professor at the Universidad de Santiago de Chile (USACH), she holds a PhD in Government from the University of Essex and MSc in Political Science and Political Economy from the London School of Economics (LSE). Her current research interests are experimental investigations on Decision Architecture in the area of credits and pensions. These studies look into what kinds of simplifications can be implemented to raise citizens' quality of life. She has previously studied the creation of new political parties, migration preferences, the propensity to lie, regional patterns in Covid infections, and premature mortality. The information needed to replicate her research is available at https://github.com/deniselaroze.
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).
Friends with Benefits: Strengthening Peer Effects through Aligning Reference Group Attributes to Consumer Traits
Pieter Verhallen (North Carolina State University; Netspar)
Abstract: Sharing information about peers’ behaviour has been shown to influence a subject’s behaviour across many contexts. However, such interventions have not always, and not for everyone, been effective. We propose that the alignment of specific salient reference group characteristics to specific subject traits underlies the effectiveness of peer effect interventions. Specifically, we look at two channels of influence: a normative and an informational channel. We test whether subjects’ perceived social identification with and source credibility of reference groups interact with subjects’ susceptibilities to normative and informational influence. First, we identify which reference group attributes (e.g., age, gender) have the largest impact on social identification and source credibility as perceived by a broad sample of pension fund participants (N=1,466). Next, we translate these results into peer effect interventions in the lab (N=220) and with an online panel (N=1,161), and find that higher social identification with a reference group results in norm convergence only if subjects’ susceptibility to normative influence is high. Lastly, we test our theory in the field (N=222,596), and confirm that higher social identification with and source credibility of reference groups, through tailored peer effect interventions targeting subsets of a heterogeneous population, strengthens the peer effect. Compared to a control condition and a generic peer effect condition commonly used in industry, the tailored peer effect conditions in our field experiment increased the click-rate by 31 to 55 per cent.
Bio: Pieter Verhallen, Ph.D., is an Assistant Teaching Professor in Marketing and Faculty Senator at the Poole College of Management, North Carolina State University. He has held previous affiliations with Duke University, Maastricht University, as well as Universidad Panamericana Guadalajara, and is a research fellow at the Network for Studies on Pensions, Aging and Retirement (Netspar). With a background in psychology and life sciences (BSc), entrepreneurship (MSc), and marketing (PhD), his research focuses on consumer financial decision-making, and has been applied in the field with public and private organizations in both Europe and the United States to drive behavioural change. Next to his research, he founded, managed, sold and supported multiple digital and fast-moving consumer goods startups (Unilink, Game Collectibles Benelux, MiniTree, Asana, Dutch Webshop Company, Soapbox, Prolendo), conducting business with stakeholders in over 70 countries.
Quantifying the Insurance Effects of Japanese Social Insurance Policies on Household Structure
Charles Leung (City University of Hong Kong)
Abstract: The importance of social insurance programs and redistributive taxation systems in promoting a stable and inclusive society is heightened by the challenges of an aging population. This paper aims to investigate the relationship between household insurance capacity and the effectiveness of various social insurance policies in smoothing income across diverse demographic groups. By quantifying the insurance effects of each policy on different household characteristics, such as age, marital status, health status, and productivity levels, this paper offers a comprehensive analysis. Considering government budget constraints and the issues stemming from an aging population, our findings provide valuable insights for policymakers to develop targeted programs that improve social welfare and address the concerns related to an aging population.
Bio: Charles Ka Yui Leung received his B.S.Sc. at the ChineseUniversity of Hong Kong in 1991 and Ph.D. at University of Rochester in 1996. He has taught at the ChineseUniversity of Hong Kong (Department of Economics). He received the Fulbright Scholarship (Research) in year 2004-5 and has been a visiting scholar at FisherCenter for Real Estate and Urban Economics at Haas School of Business, University of California, Berkeley (2004-5); Hoover Institution, Stanford University (several times); Wisconsin School of Business, University of Wisconsin-Madison (2013 Fall); Institute of Social and Economic Research, Osaka University (2015 Spring). Since 2012, Dr. Leung also serves as a research associate of the Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, a (non-resident) visiting research fellow of ISER, Osaka University (May 2015 ~ March 2019), a research associate of IREFIM (June 2018 ~).Most of the research output of Dr. Leung can be found in the following website: http://ideas.repec.org/e/ple96.html
SESSION 4: Pension Systems
Population Aging and Optimal Fiscal Progressivity
Abstract: This paper provides a comprehensive quantitative analysis of the optimal fiscal reform for an economy facing demographic change. To do so, I build a standard overlapping generation heterogeneous-agent general equilibrium model, augmented with rich household heterogeneity and a realistic fiscal system. To conduct comprehensive fiscal policy reforms, I expand the conventional policy toolkit with payroll tax deduction, which injects more progressivity into the pension system. Moreover, I also consider a novel channel -- the fiscal interaction between social security and progressive income tax. The main findings suggest that the optimal pension benefit scheme is flat. In addition to the flat benefit, an augmented payroll tax deduction of around 15000$ can improve welfare at the cost of efficiency loss. The optimal reform considering fiscal interaction also features a flat pension scheme, but a less progressive income tax and slightly higher payroll tax cap. The reduction in the fiscal progressivity balances equity and distortions, improving efficiency significantly compared to reforms of the social security system only. While population aging does not alter the patterns of the optimal policy, it raises the optimal level of fiscal progressivity compared to the counterparts under the status quo. The key reason for this is that as low-skill households live longer, the benefits of progressive policies increase.
Bio: Fan Yang is a Ph.D. candidate in Economics. His main research interest is in macroeconomics and public economics. He is particularly specializing in topics related to inequality, fiscal policy, demographic changes, and their interactions with agents’ behaviours. His research combines empirical analysis using micro-survey data, and large-scale quantitative models to quantify heterogeneous agents’ behaviour and study optimal fiscal policy reforms. He will become a postdoc researcher at McGill University in 2023 Fall and work on topics related to demographic change and caregiving. For more information about him, please visit https://www.fanyangecon.com/.
Dynamic Allocation Strategy with Retirement Bonds: The Case of Brazil
Arun Muralidhar (AlphaEngine Global Investment Solutions)
Abstract: Australian superannuation funds have focused a lot of attention, but have not solved the key issue of appropriate decumulation. Brazil issued a series of retirement bonds (RendA+) in January 2023 and withing the first six months had raised over R$ 1bn in AUM from 60,000 investors. This retirement bond innovation could provide a useful case study for Australia (and other countries) to adapt and adopt and we demonstrate how this retirement bond, along with an intelligent dynamic allocation strategy can help individuals have a high probability of achieving retirement goals, unlike current products offered to participants. The goal of investing for retirement is to secure a target level of income that maintains the individual’s preretirement lifestyle. Current “safe harbor” glide-path products shift investments from stocks to bonds on the basis of the individual’s age. This approach is unlikely to secure a target retirement income because the glide path is focused on the wrong goal. Additionally, naïve static 60/40 type portfolios are also unlike to provide secure retirement income. We tested a dynamic asset allocation strategy that takes no view of future market performance and is based on a retirement income goal, but leverage the fact that investors now have access to the new retirement income bond in Brazil (and currently contemplated in many developed and developing countries). We show how this dynamic strategy could dominate standard portfolio choices. The article introduces a new way to think about intermediate retirement targets and explores the implications of the dynamic asset allocation strategy for the level of savings required to achieve a retirement goal.
Bio: Co-Founder of Mcube Investment Technologies LLC and creator of the retirement bond and education bond ideas. Currently advising governments on the design and implementation of such instruments. PhD MIT Sloan School of Management 1992. Authored 4 books on pensions and investments, including a book with Nobel Laureate Franco Modigliani and multiple papers with Nobel Laureate Robert C. Merton.
“Growing Pains” in China’s Social Security System
Xincheng Qiu (Arizona State University)
Abstract: This paper investigates the puzzles in China’s social security system. First, given the relatively low benefit rate and still relatively young demographic structure, the statutory contribution rate is surprisingly high and the social security fund is already in deficit. Second, despite the low statutory retirement ages (50 for women and 60 for men), early retirement is prevalent. We develop and calibrate an overlapping generations model of optimal social security featuring wage compression relative to workers’ productivity, which we micro-found by older workers’ fairness concerns. The theory provides a novel and unified explanation for these facts, focusing on the labor demand side forces: firms are not willing to hire older workers who have lower productivity relative to the younger cohorts but demand wages that rise with those of the younger cohorts. We find that, paradoxically, the rapid inter-cohort productivity growth, a phenomenon we documented in Fang and Qiu (2022), is at the root of these puzzles, leading to “growing pains” in China’s social security system. Our quantitative analysis reveals that surprisingly, the “growing pains” in China’s social security system will be “cured” when the inter-cohort productivity growth slows down to the levels in more developed economies.
Bio: I am an Assistant Professor at the Department of Economics, W. P. Carey School of Business, Arizona State University. I received my Ph.D. from the Department of Economics, University of Pennsylvania, in May 2023.
Allocation of Longevity Gains in Public Pension Plans
Eduard Ponds (Tilburg University; APG Asset Management)
Abstract: This paper analyses for a sample of 17 OECD countries the impact of the longevity trend on the implied return over time of public pension plans. We are interested in a fair and sustainable allocation. Using a stylized model, we derive as fair rule that the increase in life expectancy is distributed proportionally over the working and the retirement period, so that the ratio of working period length and pension period length will remain stable for different cohorts. We calculate for a sample of 17 OECD countries the internal rates of return of participating in the public plans of these countries for cohorts born in the period 1935-1990. The fair rule, compared to the historical practice, lead to an average reduction of the internal rate of return with around 0.5%-point. We also confirm that the fair rule implies a more stable ratio of retirees over workers and a more stable contribution rate.
Bio: Prof. Dr. Eduard Ponds holds the chair of Economics of Collective Pension Plans at Tilburg University. He is expert in economics of pensions and collective pension plans, in particular in the fields of pension funds, pension plan (re)design, risk management, actuarial aspects, intergenerational risk sharing, and classic and value-based ALM. His publications are mainly on collective pensions, in particular related to the pension fund sector in the Netherlands and elsewhere. He is also employed at APG as researcher (www.apg.nl), a pension service provider in the Netherlands with 600 bln euros AuM and 25 clients (end 2022).
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