AASB 1028 And Choice Of Discount Rate: Gross Or Net Of Taxation Effects?

This paper discusses the issues arising from the choice of discount rate to be included in the present-value calculation required for the measurement of liabilities relating to employee entitlements in company accounts. We look at the implications of AASB 1028, as it concerns the choice of a discount rate before or after an allowance for taxation. AASB 1028 relates to most employee entitlements including long-service leave, accumulated annual leave and workers' compensation, where the accounting entity self-insures.     

The Role of the Personal Tax System in Old‐Age Support: A Survey of 15 Countries

This paper examines the tax treatment of pensioners in 15 industrialised countries. Using a standard methodology, it calculates the average and marginal tax rates of older people and compares them with those of people of working age. These are then combined with a model of pension entitlements in different countries. This shows that tax differentials play an important role in old‐age support. We discuss the appropriate way for the tax system to support pensioners and the implications for the tax treatment of private pensions.     

Universal Credit: A Preliminary Analysis of Its Impact on Incomes and Work Incentives*

Alongside a series of cuts that will reduce welfare spending by £18 billion per year by 2014–15, the UK government announced in November 2010 plans to integrate and simplify means‐tested welfare benefits and in‐work tax credits for working‐age adults into a single programme, to be known as Universal Credit and to be phased in from October 2013. The aims were to make it easier for claimants to claim benefits, to make the gains to work more transparent and to reduce the amount spent on administration and lost in fraud and error. More households will see entitlements rise from the move to Universal Credit considered in isolation than will see entitlements fall; in aggregate, entitlements will rise by nearly £1.1 billion a year. Low‐income families will see their entitlements rise by more than high‐income families, on average, and couples will gain more from the reform, on average, than single‐adult families, especially if there are also children in the family. In general, those facing the weakest incentive to work at all, or the weakest incentive to increase earnings, see their incentives strengthened, including those with very low earnings and hours worked per week and those who at present experience simultaneous withdrawal of multiple means‐tested benefits and tax credits. But a Council Tax Benefit that operates separately from Universal Credit, and that has rules that vary across English local authorities, could easily undermine many of the supposed advantages of Universal Credit.     

Portfolio structure of the German households and the role of insurance and pension entitlements

This paper examines the wealth structure of German households from 1975 to 2014 with special reference to the asset class insurance and pension entitlements. Therefore we use a unique dataset of Deutsche Bundesbank and apply a Financial Almost Ideal Demand System (FAIDS). We find a nearly proportional reaction of the insurance share to changes in the total wealth level, but no significant impact of the insurance return to the asset class. Therefore we conclude that security and not return optimization is the main demand motive for the asset class insurance and pension entitlements. Finally, we find a positive relation between the share of the elderly in Germany and the insurance share in the portfolio.     

ACCOUNTING FOR EMPLOYEE ENTITLEMENTS*

This paper considers the problem of accounting for employee entitlements. Accrued entitlements to annual leave, sick leave and long service leave are evaluated by reference to the basic characteristics of an accounting liability and a case is presented for liability recognition in each instance. An empirical survey undertaken by the authors shows current practice in this area and indicates the need for improved financial reporting.     

Flexible pension take-up in social security

This paper studies the redistribution and welfare effects of increasing the flexibility of individual pension take-up. We use an overlapping-generations model with Beveridgean pay-as-you-go pensions and heterogeneous individuals who differ in ability and lifespan. We find that introducing flexible pension take-up can induce a Pareto improvement when the initial pension scheme contains within-cohort redistribution and induces early retirement. Such a Pareto improving reform entails the application of uniform actuarial adjustment of pension entitlements based on average lifespan. Introducing actuarial non-neutrality that stimulates later retirement further improves such a flexibility reform.     

Retirement Behaviour in Austria: Effects of Incentives on Old‐Age Labour Supply

We provide an extensive analysis of retirement behaviour in Austria with a special focus on the role of incentives delivered by the tax and benefit system in determining individual retirement decisions. A comprehensive microsimulation model of the Austrian pension system is applied to calculate retirement benefit entitlements and forward‐looking incentive measures (social security wealth, accrual rate, peak and option values) on an individual basis. We use the calculated incentive measures as the main explanatory variables in probit models to explain retirement decisions. We base our microsimulation and estimations on an extensive administrative Austrian data set. These data contain information on more than 300,000 new retirees from the period 2001–11. We provide robust evidence that incentive measures are well suited to explaining individual retirement decisions.     

Financial fairness and conditional indexation

Collective pension contracts can generate advantages for their participants by implementing forms of risk sharing. To ensure the continuity of a collective scheme, it has to be monitored whether the contracts offered to participants are financially fair in terms of their market value. When risk sharing is implemented by means of optionalities such as conditional indexation, the analysis of financial fairness is not straightforward. In this paper, we use a stylised overlapping generations model to study financial fairness for a conditional indexation scheme. We find that financial fairness for all participants at all times is not feasible within a scheme of this type, unless the nature of indexation is such that the scheme is reduced to DC. However, financial fairness for incoming generations at the moment of entry can be realised. We show how to compute the fair contribution rate as a function of the current nominal asset/liability ratio for a given level of nominal entitlements. At low levels of the ratio, the fair contribution for incoming generations is also relatively low; nevertheless, the joining of a new generation still has a positive effect on the asset/liability ratio.     

Pay Me Later: Inside Debt and Its Role in Managerial Compensation

Though widely used in executive compensation, inside debt has been almost entirely overlooked by prior work. We initiate this research by studying CEO pension arrangements in 237 large capitalization firms. Among our findings are that CEO compensation exhibits a balance between debt and equity incentives; the balance shifts systematically away from equity and toward debt as CEOs grow older; annual increases in pension entitlements represent about 10% of overall CEO compensation, and about 13% for CEOs aged 61–65; CEOs with high debt incentives manage their firms conservatively; and pension compensation influences patterns of CEO turnover and cash compensation.     

Underwritten Dividend Reinvestment Plans and Conflicts of Interest

We examine conflicts of interests arising from the pricing of seasoned equity offerings (SEOs) in underwritten dividend reinvestment plans (DRIPs). A DRIP is a type of SEO that enables shareholders automatically to reinvest their dividend entitlements in the issuing company's shares. The underwriters have an incentive to sell stock during the DRIP pricing period in order to hedge price risk and/or to reduce the price at which shares are issued. Using individual brokers’ transactions, we show that underwriting brokers engage in an abnormally high level of selling during the issue pricing period. Comparison of pricing period returns between stocks with underwritten DRIPs and a matched sample of non‐underwritten DRIPs shows that significantly more negative returns accrue to firms that have their issues underwritten.     

The Market Value of UK Dividends From Shares With Differing Entitlements

Abstract:   This paper determines the market value of dividends in the UK during periods before and after 1997. Previous studies, which use the ex‐dividend day method, tend to provide noisy and potentially biased measures of dividend value. We estimate the value of dividends from the prices of shares that are identical except for their dividend entitlements, and are traded concurrently (within the same hour). We argue that our estimates of dividend value are the cleanest yet available for the UK. Our evidence suggests that ex‐dividend day estimates are biased downwards, but that this bias may be mitigated by the use of robust regression. Dividend values are heterogeneous and are not explained by the tax‐clientele hypothesis.     

The Idealized Electoral College voting mechanism and shareholder power

Increasing concern over corporate governance has led to calls for more shareholder influence over corporate decisions, but allowing shareholders to vote on more issues may not affect the quality of governance. We should expect instead that, under current rules, shareholder voting will implement the preferences of the majority of large shareholders and management. This is because majority rule offers little incentive for small shareholders to vote. I offer a potential remedy in the form of a new voting rule, the Idealized Electoral College (IEC), modeled on the American Electoral College, that significantly increases the expected impact that a given shareholder has on election. The benefit of the mechanism is that it induces greater turnout, but the cost is that it sometimes assigns a winner that is not preferred by a majority of voters. Therefore, for issues on which management and small shareholders are likely to disagree, the IEC is superior to majority rule.     

A new statutory director’s duty for Australia — a ‘duty’ to be concerned about employee entitlements in the insolvent corporation

Australia has introduced legislation that is aimed at preventing a person from entering into agreements or conducting transactions with the intention of defeating the recovery of employee entitlements. It is essentially aimed at directors and their behaviour in the pre‐appointment period. This paper discusses the history leading up to such a legislative move and the likely benign impact now that the Corporations Act in Australia prohibits such behaviour. Further, the paper argues that mooted changes to the legislation giving employees a ‘maximum priority’ ahead of secured creditors is unnecessary. Copyright © 2003 John Wiley & Sons, Ltd.     

Accountability and human rights: A tentative exploration and a commentary

There continues to be many attempts to articulate what is meant by Human Rights but Griseri and Sepella's (2010, p. 176) adaptation of Leighton et al. (2002) as “entitlements that one holds by virtue of being a human being” takes us to the heart of the matter. What is it to be human and what does humanity demand of us? But the notion is far from settled; it is far from uncontentious; despite its domination by lawyers it is far from simply legalistic; and the matter has only relatively recently been taken up as a matter of focus amongst business and management academics. Human rights have, as yet, almost no presence in accounting and finance. This short essay seeks to provide an introduction to the practitioner papers presented in this issue of CPA and in doing so to provide some context within which the papers might be better appreciated. As happens too often for comfort, practice (at least regulatory and NGO practice) is still leading research and theory in the field of Human Rights. Providing that context offers us the opportunity to speculate on how – notwithstanding the potentially seminal papers that also appear in this issue – we might see accounting academe recognising and responding more widely to Human Rights.     

Taxes,International Clienteles and the Value of ADR Dividends

An alternative approach to valuing dividends is developed and applied to American Depositary Receipts (ADRs) on Australian stocks. The values of ADR dividends are estimated from the period when, due to different ex‐dividend dates, the ADRs and their underlying stocks trade with differential dividend entitlements. Australian ADR dividends are valued at less than their face value and the dividends on the underlying stocks are valued at more than their face value. This suggests that ADR dividends are priced by a clientele of US investors placing little value on the imputation tax credits attached to the dividends and that a clientele of Australian resident investors, who obtain value from imputation tax credits, price the dividends on the underlying stock.     

Flexible Majority Rules for Central Banks

We propose a flexible majority rule for central-bank committees where the size of the majority depends monotonically on the change in interest rate within a particular time frame. Small changes in the interest rate require a small share, while larger changes require a larger share of supporting votes. We show that flexible majority rules are superior to simple majority rules.     

Does it Pay to Work in the Public Sector? Evidence from Three Decades of Econometric Analyses

Evidence suggests there were some large positive pay premiums in the UK public sector between the 1970s and early 1980s, but by the end of the 1990s only female public sector workers benefited from working in the public sector. The gradual erosion of other traditional benefits of working in the sector, such as greater job security and more generous pension entitlements, reinforces this conclusion. In addition to indicating where further research is required, this article presents a full taxonomy of the econometric results and addresses New Labour's renewed emphasis on regional pay (to reflect the regional cost of living) that should be of interest to practising managers concerned with recruitment, retention and motivation of public sector employees.     

Encouraging savings through the life cycle

This paper discusses management of an individual's savings over the life cycle. It introduces the concept of a ‘Lifetime Savings Account’, to provide a coherent framework for organising investments: a ‘one-stop shop’ for all financial needs, encompassing cash, medium- and long-term investments, managing credit card debt, accessing loans, life insurance and keeping an individual's pension entitlements in one place. The paper proposes replacing tax relief with matching saving incentives, which could be administered by the account, and recommends introduction of a fixed-term Individual Savings Account (ISA) with incentives to keep invested for five years and extra incentives to renew or transfer to a pension. Finally, the paper introduces the concept of a ‘Minimum Lifetime Annuity’ which would be sufficient to ensure no need for meanstested benefits, also suggesting it might be sufficient if an individual has adequate capital in the Lifetime Savings Account to be able to purchase such an annuity if necessary, without having actually to effect the transaction.     

The Proposed State Second Pension

The UK government has recently proposed radical changes in second-tier pension provision, with the existing State Earnings-Related Pension Scheme (SERPS) being replaced by a new State Second Pension (SSP). This paper sets out how the proposed scheme differs from its predecessor and describes the distributional effects of this reform. It shows that the SSP greatly increases the pension entitlements of low earners while maintaining existing benefit levels for higher earners. However, the higher contributions needed to pay for the new scheme mean that, after taking financing into account, people earning more than around £12,000 a year will lose out. Because of the upper limit to National Insurance contributions for employees, these losses will be greatest for people earning at the contribution ceiling.     

The Take‐Up of Multiple Means‐Tested Benefits by British Pensioners: Evidence from the Family Resources Survey

Non‐take‐up of means‐tested benefits among pensioners is of long‐standing concern. It has assumed increased importance from October 2003 with the introduction of the new means‐tested pension credit to which about half of pensioners are expected to be entitled. We use Family Resources Survey data from April 1997 to March 2000 to investigate patterns of pensioner take‐up of income support (IS) (subsequently renamed the minimum income guarantee and now subsumed in pension credit), housing benefit (HB) and council tax benefit (CTB). Although 36 per cent of pensioners in our sample failed to claim their entitlements to at least one of these benefits, only 16 per cent failed to claim amounts worth more than 10 per cent of their disposable income. Generally, take‐up is high where entitlement is high. But there are exceptions which may reflect the claims process and/or a greater degree of social stigma associated with IS than with HB or CTB.