The Save More Tomorrow™ (or SMarT) plan has proven effective in raising employee saving rates and appears to be popular among participants and the media. An important question has remained on the minds of economists despite this success: just how close does the prescriptive SMarT plan come to approximating the normative life-cycle/permanent-income consumption rule? That is, does it pay (in a lifetime utility sense) to participate in a SMarT plan? We attempt to provide some rigorous answers to this question by employing a quantitative-theoretic model to perform dynamic welfare analysis, and our results tend to support the SMarT plan as a decent first approximation to the life-cycle/permanent-income rule. We also consider the problem of an altruistic employer seeking to maximize the lifetime utility of employees by appropriately choosing the default SMarT parameters in the face of employee heterogeneity in saving rates and uncertainty about whether they will actually stick with the plan. The employer's problem is augmented to include employee heterogeneity concerning risk taking, and we also consider the possibility that SMarT saving may be met with increased borrowing.

Compared with large institutional pension funds, there is relatively little published research on small funds, which are defined in the Australian superannuation legislation as pension funds with less than five members. Small funds account for more than 20% of total pension assets and they are one of the fastest growing sectors and therefore play a significant part in the savings strategy for national retirement income. This paper contributes to the needed research by analysing the more granular audited accounting data collected for the subset of small funds regulated by the Australian Prudential Regulation Authority (APRA) over the last few years. The analysis provides new insights into the operating costs involved in running the funds, the investment performances and portfolio compositions of Small APRA Funds (SAF).

Incomplete and highly fragmented work histories threaten to leave many contributors of the pension schemes in Latin America without the minimum pension guarantee or even without access to the ordinary pension. We propose a methodology to assess this risk, identify vulnerable groups and study potential determinants of the history of contributions using information from the work history records of the social security institutions. We apply this methodology to the largest social security institution of Uruguay, the Banco de Previsión Social (BPS), and show that the majority of contributors to this institution might not comply with the minimum number of years of contribution that is currently required to access an ordinary pension when they reach the retirement age.

The main aim of this paper is to analyse the impact of shifting demographics and changes in pension arrangements in a model that includes housing as both an investment asset and a consumption good. We consider the impact on welfare, and on macroeconomic aggregates, of some specific pension reforms. Using a calibrated OLG model with several sources of uncertainty, we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. We find that pension reform has a very significant impact on the demand for, and price of, housing. The interaction between pension reform and housing is a neglected subject and one which the results we present suggest is important.

As part of the pension reform recently approved in Chile, the government introduced a centralized auction mechanism to provide the Disability and Survivors (D&S) Insurance that covers recent contributors among the more than eight million participants in the mandatory private pension system. This paper is intended as a case study presenting the main distortions found in the decentralized operation of the system that led to this reform and the challenges faced when designing a competitive auction mechanism to be implemented jointly by the Pension Fund Managers (AFP). When each AFP independently hired this insurance with an insurance company, the process was not competitive: colligated companies ended up providing the service and distortions affected competition in the market through incentives to cream-skim members, efforts to block disability claims, lack of price transparency, and the insurance contract acting as a barrier to entry. Cross-subsidies, inefficient risk pooling, and regulatory arbitrage were also present. The Chilean experience is relevant since other privatized systems with decentralized provision of this insurance may show similar problems as they mature. A centralized auction mechanism solves these market failures, but also gives raise to new challenges, such as how to design a competitive auction that attracts participation and deters collusion. Design features that were incorporated into the regulation to tackle these issues are presented here.

It has been argued whether a transfer policy for elderly people should be in kind or in cash. This paper presents a rationale to answer the question in an endogenous growth model with a two-way intrafamily transfer in middle age, education for the child as an inter-vivos transfer, and informal parental care in exchange for a bequest. We have two analytical results. First, a transfer in cash, such as a public pension, prevents economic growth because a strategic behavior concerning caregiving generates a disincentive effect on education. Second, a transfer in kind, such as public formal care, promotes economic growth because the valuation of the service generates an additional benefit of education, which dominates the disincentive effect. Our results show that old age support should be in kind rather than in cash in the context of economic growth and also welfare if bequests are strategic.