PensionReforms
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Since 1 May 2009



A 2009 report from the US showed that individuals slightly overestimated the potential impact of inheritances on future financial wealth. However, they tended to go to those already well-placed and made no real difference to saving rates. more


There are eight possible definitions of ‘poverty’ – a report looks at what those definitions mean in 2014 New Zealand. No one measure can cover all needs. Different measures need to be backed up by good, longitudinal data. more


New Zealand’s State Pension Age increased from 60 to 65 between 1992 and 2002. Households in the increase window lifted private savings by 2 percentage points for each year of increase. The impact of a future increase in age might be smaller. more


Chileans opt for annuities from their compulsory Tier 2 scheme at a surprising high rate – about two-thirds choose annuities. No-one seems to know why but brokerage commissions probably help. more


An economic model suggests that, at least in New Zealand, private responses to public policy saving initiatives are likely to be ‘relatively modest’. Perhaps it’s better to stay away from attempting to ‘improve’ the behaviour of individuals. more


A 2009 report describes the early impact on US households’ wealth of the GFC. No group “was left unscathed’. Older age groups were more vulnerable as they had less time to recover losses. more


New Zealand’s KiwiSaver is a natural experiment on the effect of government interventions in private provision for retirement. A longitudinal study finds no evidence that KiwiSavers had accumulated more net wealth than non-members. more


The World Bank looks at progress with ‘matching defined contribution’ (MDC) schemes. Their aim is to improve coverage and raise retirement incomes at Tiers 2 and 3. The evidence is unclear – overall contributions are not markedly higher. more


A New Zealand longitudinal study looks at measures of poverty and deprivation. The results offer insights on the movement into and out of ‘poverty’ that necessarily escape the more usual cross-sectional surveys. more


Occupational pension schemes for the public sector in the US come from a different age and need to be made fit for purpose. Short-service employees in particular are ‘short-changed’. They aren’t good for employers either. more


The UN has released a major publication on pension reform in “developing and transitional countries”. Some lessons from eight countries and three regions are described but not all the options are explored, which is a shame. more


Half of US workers do not belong to a formal, workplace savings scheme. ‘Automatic IRAs’ are the apparent answer. All non-members will be enrolled with an opt-out option. The ‘problem’ needs better definition (and evidence). more


The economic contribution of New Zealand’s growing population of the old is estimated to be significant. The position has improved somewhat in just the two years 2011-2013. more


Greece faced a financial catastrophe in 2009-10. In exchange for a sovereign bail-out, pensions were reformed. A new ‘basic pension’ starts in 2015 and is payable from age 67. There is an ‘all-or-nothing’ income-test. more


Auto-enrolment into Tier 3 schemes in the US seems to increase memberships but not overall employer contributions. It may see lower average member balances as the lower employer match-rate sees members’ contributing less as well. more


New Zealand’s KiwiSaver scheme has the “stochastic simulation” ruler run over it to see whether it satisfied ‘required’ retirement adequacy tests. A recent increase in contributions is seemingly not enough. That depends on the starting point. more


Healthcare systems face pressures in the face of ageing populations. In New Zealand, they will need to adapt to the likely needs of more older patients and in the face of constrained budgets. A major pilot project is recommended. more


A survey of New Zealand households over 26 years to 2010 confirms the life-cycle saving model but also shows a linear increase in average saving rates from savers born in the 1930s through to the 1980s. more


Conversions of US occupational DB schemes to DC seem unrelated to the make-up of an employer’s workforce. However, DB schemes seem more common in older workforces and DC to younger. more


Australians are forced to save privately for retirement. There is now more than $A1.8 trillion in superannuation assets but that costs a lot to administer – an average of $A1,300 a year for each saver. More rules seem to be the answer. more


A UK report looks at the ‘optimality’ of savings for those born in the 1940s. Can they maintain their pre-retirement consumption? 92% of households hold more than the report suggests is ‘optimal’. Ex-housing, that is still 75%. more


Pension buy-outs are more popular in the UK than previously and it’s not just about insolvent sponsors. In part, it’s an unintended consequence of the Pensions Act 2004. The UK’s experience has lessons for the US. more


The Asian Development Bank looks at ‘social pensions’ (and other things) across its client-countries. ‘Social protection’ is generally weak and needs strengthening. A country’s wealth is no barrier to the introduction of a proper social pension. more


Household income statistics in New Zealand are updated for the period 1982-2012. The value of the universal Tier 1 pension is reflected in low poverty rates amongst the old. Different measures of poverty are tested on the data. more


Compulsory DC at Tier 2 in Australia is OK as far as it goes. Passing the investment, outcome and longevity risks to members leaves more to be done. Members aren’t equipped to handle those risks and need institutional help. more


A longitudinal study shows that Australians aren’t saving enough (to meet a national poverty measure). Despite the large Tier 2 scheme, Tier 3 savings are a very important part of the mix. Australians need to save harder. more


The OECD continues to count the amount of money invested by institutions. There is a lot and it increased quite a lot in 2012. However, whether that makes pension promises more secure is another issue. more


US Social Security has three little-known benefit options, two of which have the potential to cost $21 billion a year but with no apparent public policy goal. Two of the three should be abolished. more


Greece was forced into major pension reforms in 2010 as part of a bail-out package agreed with the EC, the European Central Bank and the IMF. By 2060, an expected cost of 24% of GDP will now be 14.6%. What will the state pension look like now? more


US investment consultants seemingly don’t justify the fees they charge to plan sponsors. At least for US ‘active equity products’ over 13 years, the before-fees performance of recommended funds was worse than for non-recommended. more


The GFC has affected member behaviour in US occupational DC schemes – contributions fall before participation rates. The youngest employees seem most affected, despite increased incidence of auto-enrolment. more


In the US, older people are working longer, particularly the more highly paid and the better educated. The older Defined Benefit pensions were an impediment to flexibility and their disappearance seems to increase options. more


A 2009 report summarises policy questions and literature on the adequacy of retirement saving in Europe. Extensive knowledge gaps and possible methodologies to fill those are identified. more


A review of challenges faced by welfare systems in the UK, Australia and New Zealand suggests there is much to be done and no time to lose. The need for reforms is about much more than fiscal considerations. more


Australians were asked whether they were worse/better-off after retirement than before. About 20% reported a lower standard of living; 60% said they were happier. Subjective well-being measures seem to improve during retirement. more


So-called ‘soft-paternalism’ fares poorly with tax-subsidised saving schemes. Direct regulation of investment options and disclosure requirements seem preferable. Nudges have failed to improve investment portfolios. more


The EU’s three yearly report from 2009 compares member-states’ pension arrangements. It estimates costs through to 2060 – the average increase across the EU27 is 2.4 percentage points of GDP (based on 2008 rules). more


The UK collects ‘National Insurance Contributions’ separately from income tax. It’s time to think about merging the two into a single collection regime, reducing the current 60 categories to one. more


Proposed reforms to US Social Security should be measured by effects on poverty, adequacy, progressivity, horizontal equity and work incentives. “Simple actuarial balance” is too narrowly focussed. more


A UK report proposes a more detailed disclosure of investment management costs, including “hidden non-cash costs”. That is perhaps too ambitious – the actual net returns credited is what members need plus a framework to allow comparisons. more


The current tax treatment of retirement saving schemes in the US is regressive and could be improved by ‘flattening’ the distributions of concessions on an annual and a lifetime basis. But that still probably won’t lift saving levels. more


In the US, 30% of older home-owners moved over a 12-year period. Most didn’t move far and a ‘negative shock’ (such as divorce or death) often caused the change. There are two groups of movers – the ‘Planners’ and the ‘Reactors’. more


A Mexican bank acknowledges the problems faced by the increasingly expensive pension arrangements and recommends much more of the same. That may be good business for financial institutions but not necessarily for Mexico; nor Mexicans. more


Governments have a potential stake in the good performance of Tier 2 and Tier 3 pension schemes, especially if there are income-tests on Tier 1 benefits. Controlling investments may lower that exposure to risk; but probably won’t. more


A theoretical analysis of annuity markets suggests that ‘late-life pay-outs’ increase the welfare of both annuitants and providers. Their absence underlines a “fundamental inefficiency”. more


In the US, annuities aren’t popular so increasingly, retirees will use rules of thumb to spend down (decumulate) their savings. The IRS has tax rules about the minimum that has to be taken each year. Using that rule of thumb isn’t optimal. more


Low-income tax-filers in the US were given a ‘nudge’ suggesting they should save part of their tax refunds. It didn’t work, suggesting that ‘behavioural economics’ works only if people are pre-disposed to responding favourably. more


Chilean rules to limit risk in Tier 2 saving accounts actually seem to raise risks. Members and ‘social planners’ should be unhappy about this so a different set of rules is suggested, one that directly controls investments. more


The UK proposes simplifying a complex, three-part state pension programme into a ‘single-tier pension. There will be a long transition that will eventually lead to reduced poverty rates amongst the old. Other improvements need discussing. more


In the US, chronic health conditions mean higher out-of-pocket medical costs for the old but those seem not to reduce household spending on unrelated items. In other words, the extra costs seem not to reduce economic well-being. more