We return to the long-standing question ‘Who owns the assets in a defined benefit pension plan?’ Unlike earlier studies, we condition the market's assessment of implicit property rights on the sponsoring firm's financial health. Valuations of financially strong firms, and those that are strengthening, are more responsive to pension plan funding. For these firms, each extra dollar of net plan assets is valued at between $0.50 and $1.00. In contrast, for weak and weakening firms, valuation effects are statistically indistinguishable from zero. This result is consistent with the higher likelihood that they will renege on their pension obligations.

This paper builds on previous work (Costrell and McGee, 2017a, Education Finance and Policy) on the redistribution of teacher pension benefits, as measured by the wide variation in individual normal cost rates by age of entry and exit, and the associated cross-subsidies. The further steps taken here are: (i) to examine the impact of the discount rate on the degree of redistribution, and the analytics behind it; and (ii) to identify the distribution of the market value of the pension guarantee. Using the example of the California State Teachers’ Retirement System, I find that: (i) high-assumed returns substantially understate the extent to which costs are redistributed for back-loaded plans; and (ii) the market value of the pension guarantee is highly concentrated among long-term teachers.

Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement well-being would do well to consider the importance of both factors.

Increasing the minimum retirement age is a widespread option chosen by policy makers to reduce spending in financially constrained public pension systems. Yet, the effectiveness of such a reform strongly depends on the ability of individuals to postpone their withdrawal from the labor force. In this paper, we study the immediate impact of the 2010 reform of the French pension system by carrying out a short-term evaluation on the increase of the statutory eligibility age from 60 to 61. We use a differences-in-differences methodology, comparing the trajectories from work to retirement for succeeding generations facing a different statutory age. Using a detailed social security administrative database, we provide a global assessment of the effects of the reform, accounting for the potential substitution effects from old-age insurance toward unemployment, sickness or disability insurance schemes. Our findings suggest that despite a sizable effect on the employment rate, the reform also strongly increased unemployment and disability rates.

It has been long suggested that public pension wealth may crowd out household savings. However, there remains controversy about the extent of this displacement effect. In this paper we use an original microsimulation model based on retrospective survey data collected through the third wave of the Survey of Health, Ageing and Retirement in Europe (SHARE) to estimate the displacement effect of public pension wealth on other wealth in Belgium. Combining this rich dataset with an accurate estimation of the individual pension entitlements allows us to circumvent some of the main measurement error problems faced by previous studies. We estimate that an extra euro of public pension wealth is associated with about 14–25 cent decline in households’ non-pension wealth.

We study the fiscal and welfare consequences of three options for increasing pension generosity in Spain: (i) disability and minimum pensions are fully indexed with the Consumer Price Index (CPI); (ii) minimum and lower value pensions are fully indexed with the CPI; and (iii) returning to full price indexation of all Spanish pensions. While these reforms increase pension adequacy, the tax increases needed to finance the higher pension expenditure differ significantly. Moreover, most current cohorts prefer returning to the full price indexation of all Spanish pensions, but future cohorts prefer that only disability and minimum pensions be indexed with the CPI.

The Social Security Statement is the primary resource most workers prefer to use to learn about their Social Security benefits. The Social Security Administration periodically mails this and supporting documents to all workers to help them make informed decisions about when to start receiving their benefits. Understandably, the Statement provides detailed information about the worker's retirement benefit. However, these documents contain remarkably little information about the survivor benefit despite the financial importance of this particular auxiliary benefit to the widows of deceased workers in widowhood. We analyze the effect of modifications to the survivor benefit information in the Statement on benefit knowledge and expected claiming behavior of married men using an experimental survey of workers. The results provide evidence that the augmentation of this information can temporarily improve benefit knowledge and influence expected claim ages.

Since 2001, public-pension plans have increasingly relied upon alternative investments (AIs). We examine the impact of this trend on investment performance and the factors that led to the reliance on AI. Using data from 92 largest plans 2001–2014, we found AI, especially private equity, generally had a positive effect on investment performance, but the effect was small and unsustainable. We also found that plans with a lower funded ratio and higher investment return expectation were more likely to allocate more assets to AIs. These findings suggest that the prospect of relying on AIs to meet investment return expectations remains a long-term challenge for state and local governments.

Using regulatory data free of self-reporting bias for 2007–16, we decompose investment returns of 455 Dutch pension funds according to their key investment decisions, i.e., asset allocation, market timing and security selection. In extension to existing papers, we also assess the impact of benchmark selection. Over time, asset allocation explains 39% of the variation of returns, whereas benchmark selection, timing and selection explain 11%, 9% and 16%, respectively. Across pension funds, asset allocation explains on average only 19% of the variation in pension fund returns. Benchmark selection dominates this by explaining 33% of cross-sectional returns. We relate the choice for a specific benchmark to investment, risk and style preferences.

This paper investigates whether exposure to explanatory diagrams can affect a major financial decision. In a controlled experiment, participants were given Pension Benefit Statements with or without one or two diagrams, before answering incentivised questions that measured recall, comprehension and choice of contribution rate. The diagrams had at best a marginal influence on recall or comprehension. Nevertheless, a diagram relating contributions to income projections prompted more participants to advocate higher contributions, while both diagrams influenced the rationale participants gave for decisions. The implication is that although pension products remain hard to understand, diagrams may alter decisions by reinforcing relevant causal thinking.

This paper examines retirement saving policy for independent – or contingent – workers, a growing segment of the workforce. Because few of these workers are covered by employer-sponsored retirement plans, they often do not benefit from payroll deduction, employer matching contributions, automatic enrollment, and other provisions that encourage retirement saving. Better use of fintech, judicious changes to tax policy, and expanded Automatic IRAs would help independent workers save for retirement. In addition, we propose the creation of retirement saving accounts that attach to the worker as a supplement to, and possible replacement for, the current system of employer-sponsored accounts.

We describe the points system as proposed by the Belgian Commission for Pension Reform 2020–2040. Intragenerational equity can be realised through the allocation of points within a cohort. The intergenerational distribution is determined by fixing the value of a point for the newly retired and a sustainability parameter for the actual retirees. The value of the point links pensions to the average living standard of the employed population. We propose an automatic adjustment mechanism, in which a key role is played by the career length. This mechanism induces a balanced distribution of the burden of demographic and economic shocks over the different cohorts.

This paper explores a notional defined contribution (NDC) approach aimed at helping pensioners to cope with the cost of long-term care (LTC). It develops the necessary technicalities to fully integrate an LTC benefit, graded according to the annuitant's degree of disability, into a generic NDC retirement framework with a minimum pension benefit for both contingencies. It also discusses the policy implications of various issues that should be taken into account before any decision is made to put the model into practice. Finally, to enable policymakers to better understand how the proposal would function, the paper includes a realistic numerical example.

What is the effect of having an employer-sponsored pension plan (EPP) on financial performance in non-workplace investments? This paper offers new insight into this unresolved empirical issue using administrative data on more than 345,000 tax filers from Canada. The paper makes two key contributions. First, an approach for inferring relative returns on investments is developed based on a longitudinal analysis of saving flow-of-funds and wealth data related to the use of the tax-free savings account (TFSA). The analysis shows that there is substantial heterogeneity in asset balances across individuals with equivalent saving histories. Second, having an EPP is shown to raise the average return on investment in other tax-preferred saving plans, albeit by a modest amount of approximately 0.50–1.25% over 5 years since the TFSA was introduced. This result is robust to augmenting the analysis to an instrumental variables approach, exploiting variation in the availability of EPPs across cohorts by sex and industry of employment.

Based on a sample of university students, we provide evidence that a small-scale training intervention has both a statistically and economically significant effect on subjective and objective assessments of financial knowledge. We also show that the intervention increases self-assessed more than actual financial knowledge. The intervention consists of measuring financial literacy before and after a small on-line course and is administered through an on-line platform.

The revealed preference for dominated insurance-based personal pension plans (PPPs) in Italy is a decade-long puzzle. I surmise that a motivation from the supply side is a sales force factor deriving from the geographical distribution of financial providers, including the countrywide network of the state controlled Post Office. I provide supporting evidence using three biennial waves of the Bank of Italy's survey on household finances from 2010 to 2014. The time interval includes a public pension system reform sharply raising the statutory age retirement, legislated in December 2011 to defuse a sovereign debt crisis. I show that the salience effect on the awareness of the benefits of supplementing lower perspective public pensions with PPPs increased the explanatory power of financial strength indicators. Exploiting a module in the 2010 wave I estimate a surprising decrease in the probability of subscription to PPPs in 2014 associated with the indicator for the highest financial literacy level.

We set up an overlapping-generations model with endogenous fertility to study pensions policies in an ageing economy. We show that an increasing life expectancy may not be detrimental for the economy or the pension system itself. On the other hand, conventional policy measures, such as increasing the retirement age or changing the social security contribution rate could have undesired general equilibrium effects. In particular, both policies decrease capital per worker and might have negative effects on the fertility rate, thus exacerbating population ageing.

Who values life annuities more? Is it the healthy retiree who expects to live long and might become a centenarian, or is the unhealthy retiree with a short life expectancy more likely to appreciate the pooling of longevity risk? What if the unhealthy retiree is pooled with someone who is much healthier and forced to pay an implicit loading? To answer these and related questions this paper examines the empirical conditions under which retirees benefit (or may not) from longevity risk pooling by linking the economics of annuity equivalent wealth to actuarially models of aging. I focus attention on the Compensation Law of Mortality which implies that individuals with higher relative mortality (e.g., lower income) age more slowly and experience greater longevity uncertainty. Ergo, they place higher utility value on the annuity. The impetus for this research today is the increasing evidence on the growing disparity in longevity expectations between rich and poor.

We present novel estimates of Social Security Wealth (SSW) at the individual level based on the SHARE survey. Our estimates are based on a rigorous methodology taking into account country-specific legislations, the earning history and the longevity prospects of individuals. The key advantage over existing estimates is that our measures of SSW are fully comparable across countries. This allows us to construct indexes of the redistribution enacted by the pension systems in Europe. Finally, we provide descriptive evidence of the relationship between SSW and private wealth.

This study investigates the factors affecting financial literacy in Japan using data from Osaka University's Preference Parameter Study. We examine several demographic, socio-economic, and psychological variables drawn from the social learning, consumer socialization, and psychological theories of learning. The results indicate that the demographic factors of gender, age, and education; the socio-economic factors of income and occupation; and the psychological factor of perceptions of the future significantly affect the level of financial literacy. The results are robust to different measures of financial literacy and emphasize that social contact and people's future orientation can improve financial literacy levels in Japan.