Rafal Chomik, John Piggott, Alan Woodland, George Kudrna and Cagri Kumru
Means testing can balance the need for adequate incomes in retirement with economic efficiency objectives to an extent that is seldom appreciated by policymakers. It is an inexpensive way of ensuring a minimum level of retirement income. The means test may create disincentives to work and save for those wishing to target a certain benefit level, but such distortions are dwarfed by disincentives from much larger earnings related pensions with associated payroll taxes or social insurance premiums.
This paper summarises means testing design and implementation issues as well as tackling a key criticism relating to the claimed distortions created by means testing. In doing so, we discuss a number of recent analytical and empirical insights based on state of the art macroeconomic modelling.
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