Social Security Earnings Test and the Labour Supply of the Elderly: New Evidence from Unique Survey Responses in Japan

This study proposes an alternative approach of utilizing direct responses to a survey on the social security earnings test for the elderly to provide new evidence on the sensitivity of the labour supply decision of workers aged between 60 and 64 with respect to the test. Our empirical results show a discouraging effect on working in a large proportion of these workers in Japan, even after correcting for the observed attributes of individuals who reported being either affected or unaffected.     

SOCIAL SECURITY REFORMS AND LABOUR FORCE PARTICIPATION OF THE ELDERLY IN JAPAN*

In the present study we examine how social security programs have affected the labour force participation of the elderly over the past 40 years in Japan. Using publicly available data, we construct incentive measures for inducing retirement, to ascertain actual changes in the generosity of the programs and to explore the impact of the reforms on the labour supply of the elderly. We show that the labour force participation of the elderly is significantly sensitive to the measures, and our counter‐historical simulations show that social security reforms since 1985 featuring reduced generosity have significantly encouraged the elderly to remain in the labour force longer.     

Social Security and Family Support

This paper shows how the role of the market, the state and the family in providing old‐age support has evolved over time with changes in factors such as the reliability and the effectiveness of family support, the interest rate, the cost of public funds, and earning inequality. Agents with different productivity vote over the size of a Beveridgian pension system. When children assistance is certain, agents may rely exclusively on family and prefer no pension. However, when the size and the probability of family generosity decrease, social security is more likely to emerge.     

The effects of the raising-the-official-pension-age policy in an overlapping generations economy

This paper studies how economic variables are affected by raising the official pension age. Although it is said that such a policy increases output, this paper shows that such a statement is not necessarily true. Moreover, the paper finds that the social security benefit can decrease, which implies that it might be impossible to sustain the same level of benefit only by such a policy.     

Micro simulations on the effects of ageing-related policy measures

In the Netherlands, like in most OECD-countries, the ageing of the population endangers the sustainability of public finances. In this paper a dynamic micro simulation model is used for calculating the financial and economic implications of the ageing problem and the policy measures considered. The model uses micro datasets of all Dutch pensions and pension entitlements. The retirement decision is modelled by using an option value approach.     

An inter-temporal general equilibrium analysis of the Australian age pension means test

The Australian age pension is somewhat unusual among developed countries in that it is means tested against both the claimant’s income and assets. While means testing of age pensions facilitates the aims of directing public pensions to those senior individuals most in need and of containing pension expenditures by governments, it also has the effect of changing the incentives of individuals to work and save. This paper examines the implications of the Australian means tested age pension for incentives of individuals to save and work, for government financial commitments and for the welfare of individuals. To this end, we develop an overlapping generations model of the Australian economy that incorporates the essential features of the Australian pension, superannuation and taxation policy settings and use it to explore the implications of several hypothetical policy changes that relax the means test of the age pension. Our results confirm that the existing means-tested, age pension represents a disincentive for some older Australians to work.     

Sick of work or too sick to work? Evidence on self-reported health shocks and early retirement from the BHPS

We follow individuals as they retire using discrete-time hazard models applied to a stock sample from 12 waves of the British Household Panel Survey. We use a generalised ordered probit model to explore the existence of reporting bias and to purge the self-reported measure of health of this bias. This model takes into account the possibility that anticipated retirement may influence reporting of health. There is evidence that health shocks are a determinant of retirement age. This is the case for both men and women and is observed for both health limitations and a measure based on latent health status derived from the generalised ordered probit model. While the size of the health effect varies according to how we measure health, the relative effect is large compared to the other variables, and in particular when compared to the effects of private pensions. However numerical simulations show that this high hazard ratio interacts with the, relatively low, incidence of new health limitations among the age group of interest to generate only a modest number of excess early retirements. Further, our results do not show evidence that the health status of their partner affects the hazard of early retirement for both men and women. Having an employed partner does reduce the hazard of early retirement.     

Disability benefit microsimulation models in the Netherlands

Disability rates in the Netherlands used to be among the highest in the world. In 2002 the number of disability recipients approached one million. However, since then the number of disability cases has dropped remarkably due to a number of policy changes, the last of which being the new 2006 disability insurance scheme. On the other hand, in recent years the number of beneficiaries in the special scheme dedicated to the young handicapped has increased rapidly.     

Endogenous retirement and public pension system reform in Spain

Population aging has spurred developed countries around the world to reform their PAYG pension systems. In particular, delaying legal retirement ages and reducing the generosity of pension benefits have been widely implemented changes. This paper assesses the potential success of these policies in the case of the Spanish economy, and compares them with the results obtained by the (rather modest) reforms already implemented in 1997 and 2001. This evaluation is accomplished in a heterogeneous-agent dynamic general equilibrium model where individuals can adjust their retirement ages in response to changes to the pension rules. We check the ability of the model to reproduce the basic stylized facts of retirement behavior (particularly the pattern of early retirement induced by minimum pensions). The model is then used to explore the impact of pension reforms. We find that already implemented changes actually increase the implicit liabilities of the system. In contrast, delaying the legal retirement age and extending the averaging period in the pension formula to cover most of the individual's life-cycle can reduce the implicit liabilities substantially. These findings reveal the failure of the Spanish political system to distribute the costs of population aging more evenly across the generations.     

The choice between an annuity and a lump sum: Results from Swiss pension funds

This paper uses unique micro data from Swiss employer-based pension plans to study the annuitization decision at retirement. The administrative nature of our data, though limited with respect to individual background characteristics, allows us to analyze real choices over large retirement balances, rather than subjectively reported intentions to annuitize. We find a strong and robust impact of a utility-based measure of the annuity's value (computed within a life-cycle framework) on individual annuitization rates. Low accumulation of retirement assets is strongly associated with the choice of the lump sum, presumably due to the availability of means-tested social assistance. The sponsor's default option, in most cases the annuity, is also found to be highly influential in the decision to annuitize.     

Income splitting among the self-employed

Abstract .  Under individual taxation with progressive marginal tax rates, households in which the distribution of income is unequal benefit from attributing income to the lower income household member. Self-employment provides greater potential to 'split' income in this way because of the absence of a third party reporting income. Using the Canadian experience as a case study, this paper develops a unique estimator of the incidence of illegal income splitting among self-employed couples. The results suggest that the incidence of income splitting among self-employed men in Canada is non-trivial; but no evidence is found that self-employed women attribute income to their spouses.     

Social security and economic integration

This letter analyzes the impact of economic integration on capital accumulation and capital flows when countries differ in their social security systems. Funding and early retirement both foster capital accumulation relative to pay-as-you-go pensions with flexible retirement. When economies integrate, both imply capital outflow possibly resulting in utility losses.     

The Social Protection System in Ageing China

China has made great progress in weaving its social safety net in the new century. By constructing the three pillars of its social protection system – the pension system, the medical care system, and social assistance – China is trying to cover all its people under the system. Regardless of these great achievements in coverage, China has been facing challenges in the era of population ageing. In addition, the system per se needs to be integrated among various groups of people. Sustaining and strengthening the three pillars will rely on labor productivity improvement, adequate choices of welfare, and efficiency improvements.     

Fertility,Intra‐Generational Redistribution,and Social Security Sustainability

Incorporating heterogeneity in preference to having children into an overlapping generations model of a small open economy, we examine the effects of changes in the size of pay‐as‐you‐go (PAYG) social security on fertility choices of individuals and population growth of the economy. It is shown that PAYG social security will raise population growth by increasing the number of individuals who have children and the number of children parents have if the system involves redistribution between retirees with different contributions, whereas, if it has no redistribution, PAYG social security does not affect the fertility decisions of individuals.     

Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations*

The new Simplified Superannuation regulations for Australian superannuation provide tax concessions to retirement income streams which comply with legislated minimum drawdown rules. We evaluate these new drawdown rules against four alternatives, including three formula‐based ‘rules of thumb’ used by financial planners. We find that the new regulations are a substantial improvement on the previous rules for allocated pensions and, when compared with the formula‐based rules, are a good compromise in terms of simplicity, adequacy and risk. We also find that welfare is lower for most individuals who follow the Simplified Superannuation rules compared with welfare under an optimal path or a simple fixed percentage drawdown rule, but that outcomes could be improved through a further simplification of the new rules.     

Age-Dependent Taxation and the Optimal Retirement Benefit Formula

Abstract. This paper presents a comprehensive view of lifetime taxation including both explicit taxation through the general tax system and implicit taxation via the retirement benefit formula. Differences in productivity between individuals are unobservable, which provides a rationale for the use of distortionary taxes. It is shown that the optimal structure of age-dependent taxation can be characterized by a generalized Ramsey formula. Furthermore, the paper derives the optimal retirement benefit formula in the presence of the general tax system and examines the compatibility with the financial stability of the pension system.