Many people think that they are cautious and taking proper care of their future. They make precautionary savings and employ various strategies to try to make sure they are not out of money if they cannot work because of illness, or when they retire. Choices differ between people, depending on their financial situation, degree of optimism and attitude towards risk, but many are not saving enough for their old age.
The report discusses empirical evidence related to financial instruments which address the problems raised by longevity. We show how they could be expanded to encompass a large share of populations across Europe, as we age.
The document discusses strategies to raise workforce participation and reduce welfare dependency in Australia. It argues that while training and education can help some groups like women rejoin the workforce, it may have limited impact for those with low IQ or skills, as many jobs now require minimum IQ levels or skills above what some groups can attain. It suggests two alternatives - creating more low-skilled, low-wage job opportunities through services, or accepting that conditional welfare will be a long-term reality for some with limited capabilities.
We held a webinar with the Government Actuary’s Department (GAD) for an in-depth look at the factors affecting working lifetimes, the impact of demographic changes and the implications for future policy.
Key questions we looked at were:
What changes are we seeing in our demographics?
How might working lives change?
Do longer lives equate to healthier lives?
Exploring this with us were:
Chair: Sophia Dimitriadis (Senior Economist, ILC)
Matt Gurden – Actuarial Director for Clients Development and Growth, Government Actuary Department
Steven Baxter – Head of Innovation and Development, Club Vita
This report, containing new research by Professor Les Mayhew reveals that the life expectancy gap between the richest and poorest has begun to increase. The research reveals that the richest 5% of men are living an average of 96.2 years, which is 34.2 years longer than the poorest 10% of men. The gap is 1.7 years wider than in 1993.
There are likely to be significant unintended consequences of further increases to State Pension Age in 2028. Increasing State Pension Age up to levels where disability rates are higher, raises concerns about transferring spending from the State Pension to disability or other working age benefits. Increasing the State Pension Age further might also impact on the supply of carers. And will employers be prepared for further increases in the State Pension Age?
Public policy is beginning to recognise the challenges ahead. The DWP Select Committee are currently conducting an Inquiry into “early drawing of the state pension”. Labour have proposed a flexible state pension age so manual workers can retire earlier than other workers. Are there other, potentially more radical solutions to the inequalities challenge?
The document summarizes findings from the Aviva Real Retirement Report about finances and attitudes of over-55s in the UK. It finds that while incomes are rising, many over-55s remain concerned about having enough money in retirement. It also examines attitudes towards the new pension freedoms announced in the 2014 UK Budget, finding that while awareness is high, over half say the changes don't affect them and most will continue with traditional retirement solutions rather than accessing savings early. Spending is rising across many categories as consumer confidence increases with the improving economy.
August 14 marks the 80th birthday of the Social Security program, which was established in the Social Security Act of 1935. Over the past 80 years, Social Security has provided important cash benefits and income security to seniors, survivors, individuals with disabilities, and their families – including to nearly 60 million people today. Yet Social Security is on a financially unsustainable course – and is not on track to be able to pay full benefits through its 100th birthday.
Sadly, instead of identifying solutions to prevent depletion of the trust funds, many commenters have relied on myths and half-truths to avoid having a conversation about the necessary choices. In this paper, we identify eight such myths – though there are many more
Debt, Deficits, and Demographics: Why We Can Afford the Social ContractJesse Budlong
The emphasis on budget deficits in national policy debates over the last three decades has badly distorted national priorities. There has been an enormous amount of fundamentally confused thinking on budget deficits that has made its way into mainstream political debates. This paper shows that the potential harm from budget deficits has been seriously misrepresented and it is implausible that future generations of workers will see a decline in living standards due to the effects of an aging population. It also shows that the long-term deficit horror stories that appear frequently in public discussions are driven almost entirely by projections of exploding health care costs.
This report was originally published by the New America Foundation.
The Aviva Real Retirement report - Spring 2013Aviva plc
Welcome to Aviva’s Spring 2013 Real Retirement Report. We are into our third year of tracking the concerns and finances across three distinctive ages of retirement – pre-retirees (aged 55-64), retiring (65-74) and long-term retired (over-75) – and continue to find new realities and challenges emerging.
Demographic change means that more people will live past the point where they require care. As the increase in life expectancy looks set to continue, we need to develop enterprising and innovative ways to help people save and plan for this eventuality and bring new money into the care system. If people are to save for their future, especially people who are on lower incomes or are less wealthy, it is essential that they have opportunities to do so in a way that is simple, attractive, engaging, and safe, and which provides them with more choice about the care and support they would like. Equally, they must not be penalised for having done so through means tested support. This is what Personal Care Savings Bonds are intended to be all about.
The document discusses strategies to raise workforce participation and reduce welfare dependency in Australia. It argues that while training and education can help some groups like women rejoin the workforce, it may have limited impact for those with low IQ or skills, as many jobs now require minimum IQ levels or skills above what some groups can attain. It suggests two alternatives - creating more low-skilled, low-wage job opportunities through services, or accepting that conditional welfare will be a long-term reality for some with limited capabilities.
We held a webinar with the Government Actuary’s Department (GAD) for an in-depth look at the factors affecting working lifetimes, the impact of demographic changes and the implications for future policy.
Key questions we looked at were:
What changes are we seeing in our demographics?
How might working lives change?
Do longer lives equate to healthier lives?
Exploring this with us were:
Chair: Sophia Dimitriadis (Senior Economist, ILC)
Matt Gurden – Actuarial Director for Clients Development and Growth, Government Actuary Department
Steven Baxter – Head of Innovation and Development, Club Vita
This report, containing new research by Professor Les Mayhew reveals that the life expectancy gap between the richest and poorest has begun to increase. The research reveals that the richest 5% of men are living an average of 96.2 years, which is 34.2 years longer than the poorest 10% of men. The gap is 1.7 years wider than in 1993.
There are likely to be significant unintended consequences of further increases to State Pension Age in 2028. Increasing State Pension Age up to levels where disability rates are higher, raises concerns about transferring spending from the State Pension to disability or other working age benefits. Increasing the State Pension Age further might also impact on the supply of carers. And will employers be prepared for further increases in the State Pension Age?
Public policy is beginning to recognise the challenges ahead. The DWP Select Committee are currently conducting an Inquiry into “early drawing of the state pension”. Labour have proposed a flexible state pension age so manual workers can retire earlier than other workers. Are there other, potentially more radical solutions to the inequalities challenge?
The document summarizes findings from the Aviva Real Retirement Report about finances and attitudes of over-55s in the UK. It finds that while incomes are rising, many over-55s remain concerned about having enough money in retirement. It also examines attitudes towards the new pension freedoms announced in the 2014 UK Budget, finding that while awareness is high, over half say the changes don't affect them and most will continue with traditional retirement solutions rather than accessing savings early. Spending is rising across many categories as consumer confidence increases with the improving economy.
August 14 marks the 80th birthday of the Social Security program, which was established in the Social Security Act of 1935. Over the past 80 years, Social Security has provided important cash benefits and income security to seniors, survivors, individuals with disabilities, and their families – including to nearly 60 million people today. Yet Social Security is on a financially unsustainable course – and is not on track to be able to pay full benefits through its 100th birthday.
Sadly, instead of identifying solutions to prevent depletion of the trust funds, many commenters have relied on myths and half-truths to avoid having a conversation about the necessary choices. In this paper, we identify eight such myths – though there are many more
Debt, Deficits, and Demographics: Why We Can Afford the Social ContractJesse Budlong
The emphasis on budget deficits in national policy debates over the last three decades has badly distorted national priorities. There has been an enormous amount of fundamentally confused thinking on budget deficits that has made its way into mainstream political debates. This paper shows that the potential harm from budget deficits has been seriously misrepresented and it is implausible that future generations of workers will see a decline in living standards due to the effects of an aging population. It also shows that the long-term deficit horror stories that appear frequently in public discussions are driven almost entirely by projections of exploding health care costs.
This report was originally published by the New America Foundation.
The Aviva Real Retirement report - Spring 2013Aviva plc
Welcome to Aviva’s Spring 2013 Real Retirement Report. We are into our third year of tracking the concerns and finances across three distinctive ages of retirement – pre-retirees (aged 55-64), retiring (65-74) and long-term retired (over-75) – and continue to find new realities and challenges emerging.
Demographic change means that more people will live past the point where they require care. As the increase in life expectancy looks set to continue, we need to develop enterprising and innovative ways to help people save and plan for this eventuality and bring new money into the care system. If people are to save for their future, especially people who are on lower incomes or are less wealthy, it is essential that they have opportunities to do so in a way that is simple, attractive, engaging, and safe, and which provides them with more choice about the care and support they would like. Equally, they must not be penalised for having done so through means tested support. This is what Personal Care Savings Bonds are intended to be all about.
The changing face of ageing: From baby boom to baby bustILC- UK
The UK population has been growing at the rate of 0.4% % per cent annum. This presentation looks at the impact of baby boomers on population ageing; the increasing number of deaths from earlier baby booms; and the impact on the state pension age, housing market and inheritance
Policy Debate: Longevity, health and public policy. How should policy-makers ...ILC- UK
Launch of ILC-UK Factpack, Ageing, longevity and demographic change, Supported by Legal & General
his important briefing event, for journalists and senior policy-makers and opinion formers, set out the latest evidence on longevity and explore the extent to which government and business (financial services industry) is responding to the challenges. We will consider the extent to which longevity is influencing government and business decisions and how media and policy-makers can help to ensure that important longevity issues are taken into account.
For example, the Government has set out plans to increase the state pension age to 66 years from 2018, and 67 years from 2026. They have also announced plans to automatically link state pension age with increased longevity.
Whilst the driver of change has partly been the need for Government to cut spending and make fiscal savings, there is also a recognition that people will be spending an increasing proportion of their lives in retirement. Although we may be living longer on average, many are likely to be doing so in poor health. In parts of the country life expectancy is much lower than the UK average.
In addition, on 26th June the Government will announce its latest spending review. The impact of future spending demands of an ageing society will undoubtedly influence this review so the event will consider the extent to which Government’s current spending priorities have adequately taken into account long term demographic change and how the private sector can contribute.
The event took place just after the launch of the latest Office of Budget Responsibility fiscal sustainability report which set out the long term impact of ageing on fiscal sustainability. In its 2012 report, the OBR said; “The public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population.”
ILC-UK launched a new factpack, Ageing, longevity and demographic change, which has been produced with the support of Legal & General. The factpack will help those with an interest in population ageing and longevity to quickly access key, relevant statistics.
Speakers: Baroness Sally Greengross, ILC-UK; Kerrigan Procter, Legal & General; Joseph Lu, Legal & General; Professor Les Mayhew, Cass Business School; Professor Michael Murphy, London School of Economics; Tim Gosden, Legal & General; David Sinclair, ILC-UK.
This document discusses problems facing state pension schemes and potential solutions. It outlines the history and purpose of programs like Social Security. Currently, state pensions face fiscal imbalance as lifespans rise, birth rates fall, and wages stagnate. This puts pressure on pay-as-you-go systems where current workers fund current retirees. Proposed solutions include tax hikes, benefit cuts, raising retirement ages, or shifting to fully funded individual accounts. However, fully funded systems also carry risks around investment choices, costs, and legacy debts. Overall, the document examines challenges facing state pensions and debates between reform options.
This document discusses the confusion around retirement age expectations due to changes in the normal retirement age (NRA) for Social Security. It was previously 65 but is now 66 or 67 depending on year of birth. However, this change was not clearly communicated to the public. The document argues that establishing a consistent NRA and method for adjusting it provides important signals about societal expectations for retirement. It examines arguments for and against raising the NRA, including the need to keep people productive as lifespans increase versus potential unfairness. Overall it advocates clearly signaling a balanced NRA that allows for reasonable years of work and retirement.
The document discusses various questions people have about their social security and retirement benefits, such as why cost of living adjustments have been low, potential changes to the social security system, and strategies for maximizing benefits like delaying claiming benefits. An expert answers the questions, explaining issues like the cost of living formula and outlining various proposals from a bipartisan commission to address challenges facing the social security system.
29Oct14 - Productive Ageing - Dr Ros Altmann ILC- UK
This Robert Butler Memorial Lecture, held on Wednesday 29th October 2014, was part of the ILC Global Alliance visit to the UK.
Robert Butler, founder of ILC US, was a passionate believer in the importance of health and productive ageing and we were honoured that Dr Ros Altmann, government’s Business Champion for Older Workers agreed to give the Lecture.
FSC Future Leaders Award - Stephen FleggSteve Flegg
This document discusses policy changes that could help insulate Australia from the future economic impacts of an aging population. It identifies three key issues with the current system: 1) inadequate retirement savings among many Australians, 2) a lack of regulation around how superannuation funds are used post-retirement, and 3) inadequacies in the age pension that discourage employment and burden individuals with longevity risk. Reforming contribution caps, increasing financial assistance, regulating post-retirement spending, and restructuring the age pension are some policy solutions proposed to address these issues and better prepare Australia for its aging population.
2013 sun life_canadian_unretirement_index_report_en[1]gmeston
This document is a summary of the 2013 Canadian Unretirement Index Report by Sun Life Financial. Some key findings include:
1. Fewer Canadians expect to retire at age 66, with just 27% expecting to retire at that age compared to 51% five years ago. More Canadians expect to be working full-time at age 66 (26%) or working part-time (32%).
2. Canadians are working past 65 primarily for financial reasons rather than lifestyle choices. Over 60% say they need to work past 65 due to financial needs rather than wanting to.
3. Many Canadians have retirement dreams that are not aligned with their savings realities. On average Canadians expect to need $46,000 annually in
Most people's retirement prospects are fairly bleakMaxiLife
Deloitte's and HSBC have some pretty powerful information on your retirement future. There's plenty of bad news but it is mostly fixable.
You can accumulate enough wealth to retire comfortably if you take some action now.
Visit www.maxilife.com.au and find out how!
Public service and demographic change: an ILC-UK/Actuarial Profession joint d...ILC- UK
Full details of the event are available here: http://www.ilcuk.org.uk/index.php/events/ilc_uk_and_the_actuarial_profession_debate_public_service_and_demographic_c
The live blog for this event is available here: http://blog.ilcuk.org.uk/2013/04/23/live-blog-public-service-and-demographic-change/
The document discusses a proposed UK Equity Bank that would allow homeowners aged 65+ to access equity in their homes to generate extra retirement income. It would work by the homeowner trading a portion of their home equity in exchange for an inflation-linked lifetime income from the bank. Upon the homeowner's death, the bank would recover the costs from the estate. The bank is proposed to address issues like income insecurity, isolation, and inability to pay for support as people age. It aims to better serve those with housing wealth but limited other assets or income. The document outlines how the bank could work, who it would target, potential administration models, and interactions with taxes and benefits.
[ARCHIVE] Aviva Real Retirement report, March 2012Aviva plc
The Aviva Real Retirement Report is a quarterly analysis of the finances and related concerns of people in three stages of retirement, 55-64, 65-74, and over 75.
27Mar14 - Community Matters Semiar Series - At Home - ppt presentation ILC- UK
The slides from the second in a series of three seminars from ILC-UK and Age UK on Community Matters - are our communities ready for ageing?
Full details here: http://www.ilcuk.org.uk/index.php/events/community_matters_are_our_communities_ready_for_ageing._at_home
This was the final event in the Population Patterns Seminar Series which explored the “silver separators”- divorce later in life.
Figures from the Office for National Statistics published in 2012 showed a huge rise in the divorce rate amongst those in their 60s, with an increase of 58% on the 2011 figure. The last 10 years have seen more and more older people part ways, despite divorce amongst the general population becoming less common. This has happened to such an extent that the over 60’s are now the fastest growing divorce group in the UK.
A variety of reasons have been suggested, including a reduction in the stigma surrounding divorce and couples no longer feeling obliged to stay together if their attitudes and needs change.
However, figures released by the ONS in June 2012 revealed that marriages involving older people were also rising faster than for other age groups – up by 21% for women and by 25% for men in their late sixties. Re-partnership is likely to be even higher than these figures suggest, as older people in a new relationship may not choose to remarry.
During the event the discussion explored a number of themes, including:
What factors have contributed to the rising rate of divorce amongst the over 60s?
How can older people’s relationships be better supported?
What challenges does ageing present to relationships?
How do care responsibilities effect relationships?
What are the potential ramifications of older couples separating?
AEGON Retirement Readiness Survey conducted in 2012, where participants from Netherlands were surveyed to find out what their retirement preparedness is.
Goldmine Media\'s efactsheets bundle will enable your business to generate further new business opportunities and add another layer of interaction, whether you\'re engaging with your business audiences online, by email or face-to-face.
The 22 efactsheets feature articles that include protection, both personal and business, retirement and investment planning and Inheritance Tax Planning).
Life assurance
Term assurance
Whole-of-life cover
Critical illness cover
Income protection insurance
Achieving financial security and independence
Financial Protection for you and your family
Making a will
Wealth protection
Business protection
Building a bigger retirement income
More than six million Britons over-50 look set to
retire on less than minimum wage
Financial independence
Self-Invested personal pensions
Pension consolidation
Planning for retirement
Buying an annuity
Wealth creation
The value of insurance to protect you income
Estate Planning
Is it time to get more flexible with your money?
Reducing your investment risk
America's Retirement Safety Net and information for you to understand the social security, medicare and financial needs after retirement. For more topics you can visit our other flipbooks at http://www.ferrettafinancialservices.com/sitemap.htm .
Happy reading:-
Throughout 2014, ILC-UK, supported by specialist insurance company, Partnership Assurance Group plc, is undertaking a series of events to explore the relationship between our changing demography and public policy.
The fourth event in this 'Population Patterns Seminar Series' considered the findings of our ‘Factpack’ of UK demographic statistics.
We all know that people are living longer but how is that likely to change our society? How will pensions be affected? How will we care for our growing older society when the traditional “working age” population is shrinking?
These types of debates are increasingly being played out in the media and in political circles but in order for such debates to be productive, they have to be well informed.
ILC-UK believes its 2014 ‘Factpack’ will support this process by highlighting the most recent evidence of our rapidly ageing society. Not only does it provide statistics on a range of critical topics from life expectancy to housing supply; and pensions to long-term care, it also includes a special focus on the current and potential future state of pensioner poverty.
The event was chaired by Baroness Sally Greengross (ILC-UK) with a welcome from Steve Haberman (Dean of the Cass Business School). We were delighted that Gregg McClymont MP, Shadow Minister (Work and Pensions), spoke at at the launch event. We also heard presentations from Professor Les Mayhew (Professor of Statistics, Cass Business School), Steve Groves (Chief Executive of Partnership), Ben Franklin (Research Fellow at ILC-UK) and a response from Tom Younger of the Department for Work and Pensions.
During the discussion we explored:
How the UK’s demography has changed since the release of the 2013 Factpack and how it might change in the future,
How demographic change is reshaping our society,
The challenge of pensioner poverty,
Regional variations in the experiences of older people,
How policy makers should respond to these findings.
Agenda
16:00 - 16:30 Registration
16:30 - 16:35 Welcome by Chair, Baroness Sally Greengross (ILC-UK)
16:35 - 16:40 Welcome by the Dean of Cass Business School, Professor Stete Habberman
16:40 - 16:50 Presentation from Richard Willets (Partnership)
16:50 - 17:10 Presentation from Gregg McClymont MP (Shadow Minister for Work and Pensions)
17:10 - 17:20 Presentation from Ben Franklin (ILC-UK)
17:20 - 17:30 Presentation from Professor Les Mayhew (Cass Business School) Presentation
17:30 - 17:35 Response from Tom Younger (Department for Work and Pensions)
17:35 - 18:25 Discussion/Q&A
18:25 - 18:30 Close by Chair, Baroness Sally Greengross (ILC-UK)
18:30 - 19:15 Drinks reception
When it comes to planning for retirement, the earlier you start, the more potential your money has to grow. Retirement planning is not simply about paying regularly into your pension and forgetting about it. Instead, it is essential to review your progress against your retirement goals and take account of changes that may affect your plans. For more information visit https://www.tudorfranklin.co.uk
Singapore is facing an aging population as the post-war baby boom generation reaches age 65 by 2030, birth rates have declined, and lifespans have increased. This will strain social services and the workforce as fewer young people support more elderly. A multi-pronged approach is needed, including individual responsibility through health and financial planning, family support, community help, and government support like healthcare subsidies and the Central Provident Fund retirement scheme.
The changing face of ageing: From baby boom to baby bustILC- UK
The UK population has been growing at the rate of 0.4% % per cent annum. This presentation looks at the impact of baby boomers on population ageing; the increasing number of deaths from earlier baby booms; and the impact on the state pension age, housing market and inheritance
Policy Debate: Longevity, health and public policy. How should policy-makers ...ILC- UK
Launch of ILC-UK Factpack, Ageing, longevity and demographic change, Supported by Legal & General
his important briefing event, for journalists and senior policy-makers and opinion formers, set out the latest evidence on longevity and explore the extent to which government and business (financial services industry) is responding to the challenges. We will consider the extent to which longevity is influencing government and business decisions and how media and policy-makers can help to ensure that important longevity issues are taken into account.
For example, the Government has set out plans to increase the state pension age to 66 years from 2018, and 67 years from 2026. They have also announced plans to automatically link state pension age with increased longevity.
Whilst the driver of change has partly been the need for Government to cut spending and make fiscal savings, there is also a recognition that people will be spending an increasing proportion of their lives in retirement. Although we may be living longer on average, many are likely to be doing so in poor health. In parts of the country life expectancy is much lower than the UK average.
In addition, on 26th June the Government will announce its latest spending review. The impact of future spending demands of an ageing society will undoubtedly influence this review so the event will consider the extent to which Government’s current spending priorities have adequately taken into account long term demographic change and how the private sector can contribute.
The event took place just after the launch of the latest Office of Budget Responsibility fiscal sustainability report which set out the long term impact of ageing on fiscal sustainability. In its 2012 report, the OBR said; “The public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population.”
ILC-UK launched a new factpack, Ageing, longevity and demographic change, which has been produced with the support of Legal & General. The factpack will help those with an interest in population ageing and longevity to quickly access key, relevant statistics.
Speakers: Baroness Sally Greengross, ILC-UK; Kerrigan Procter, Legal & General; Joseph Lu, Legal & General; Professor Les Mayhew, Cass Business School; Professor Michael Murphy, London School of Economics; Tim Gosden, Legal & General; David Sinclair, ILC-UK.
This document discusses problems facing state pension schemes and potential solutions. It outlines the history and purpose of programs like Social Security. Currently, state pensions face fiscal imbalance as lifespans rise, birth rates fall, and wages stagnate. This puts pressure on pay-as-you-go systems where current workers fund current retirees. Proposed solutions include tax hikes, benefit cuts, raising retirement ages, or shifting to fully funded individual accounts. However, fully funded systems also carry risks around investment choices, costs, and legacy debts. Overall, the document examines challenges facing state pensions and debates between reform options.
This document discusses the confusion around retirement age expectations due to changes in the normal retirement age (NRA) for Social Security. It was previously 65 but is now 66 or 67 depending on year of birth. However, this change was not clearly communicated to the public. The document argues that establishing a consistent NRA and method for adjusting it provides important signals about societal expectations for retirement. It examines arguments for and against raising the NRA, including the need to keep people productive as lifespans increase versus potential unfairness. Overall it advocates clearly signaling a balanced NRA that allows for reasonable years of work and retirement.
The document discusses various questions people have about their social security and retirement benefits, such as why cost of living adjustments have been low, potential changes to the social security system, and strategies for maximizing benefits like delaying claiming benefits. An expert answers the questions, explaining issues like the cost of living formula and outlining various proposals from a bipartisan commission to address challenges facing the social security system.
29Oct14 - Productive Ageing - Dr Ros Altmann ILC- UK
This Robert Butler Memorial Lecture, held on Wednesday 29th October 2014, was part of the ILC Global Alliance visit to the UK.
Robert Butler, founder of ILC US, was a passionate believer in the importance of health and productive ageing and we were honoured that Dr Ros Altmann, government’s Business Champion for Older Workers agreed to give the Lecture.
FSC Future Leaders Award - Stephen FleggSteve Flegg
This document discusses policy changes that could help insulate Australia from the future economic impacts of an aging population. It identifies three key issues with the current system: 1) inadequate retirement savings among many Australians, 2) a lack of regulation around how superannuation funds are used post-retirement, and 3) inadequacies in the age pension that discourage employment and burden individuals with longevity risk. Reforming contribution caps, increasing financial assistance, regulating post-retirement spending, and restructuring the age pension are some policy solutions proposed to address these issues and better prepare Australia for its aging population.
2013 sun life_canadian_unretirement_index_report_en[1]gmeston
This document is a summary of the 2013 Canadian Unretirement Index Report by Sun Life Financial. Some key findings include:
1. Fewer Canadians expect to retire at age 66, with just 27% expecting to retire at that age compared to 51% five years ago. More Canadians expect to be working full-time at age 66 (26%) or working part-time (32%).
2. Canadians are working past 65 primarily for financial reasons rather than lifestyle choices. Over 60% say they need to work past 65 due to financial needs rather than wanting to.
3. Many Canadians have retirement dreams that are not aligned with their savings realities. On average Canadians expect to need $46,000 annually in
Most people's retirement prospects are fairly bleakMaxiLife
Deloitte's and HSBC have some pretty powerful information on your retirement future. There's plenty of bad news but it is mostly fixable.
You can accumulate enough wealth to retire comfortably if you take some action now.
Visit www.maxilife.com.au and find out how!
Public service and demographic change: an ILC-UK/Actuarial Profession joint d...ILC- UK
Full details of the event are available here: http://www.ilcuk.org.uk/index.php/events/ilc_uk_and_the_actuarial_profession_debate_public_service_and_demographic_c
The live blog for this event is available here: http://blog.ilcuk.org.uk/2013/04/23/live-blog-public-service-and-demographic-change/
The document discusses a proposed UK Equity Bank that would allow homeowners aged 65+ to access equity in their homes to generate extra retirement income. It would work by the homeowner trading a portion of their home equity in exchange for an inflation-linked lifetime income from the bank. Upon the homeowner's death, the bank would recover the costs from the estate. The bank is proposed to address issues like income insecurity, isolation, and inability to pay for support as people age. It aims to better serve those with housing wealth but limited other assets or income. The document outlines how the bank could work, who it would target, potential administration models, and interactions with taxes and benefits.
[ARCHIVE] Aviva Real Retirement report, March 2012Aviva plc
The Aviva Real Retirement Report is a quarterly analysis of the finances and related concerns of people in three stages of retirement, 55-64, 65-74, and over 75.
27Mar14 - Community Matters Semiar Series - At Home - ppt presentation ILC- UK
The slides from the second in a series of three seminars from ILC-UK and Age UK on Community Matters - are our communities ready for ageing?
Full details here: http://www.ilcuk.org.uk/index.php/events/community_matters_are_our_communities_ready_for_ageing._at_home
This was the final event in the Population Patterns Seminar Series which explored the “silver separators”- divorce later in life.
Figures from the Office for National Statistics published in 2012 showed a huge rise in the divorce rate amongst those in their 60s, with an increase of 58% on the 2011 figure. The last 10 years have seen more and more older people part ways, despite divorce amongst the general population becoming less common. This has happened to such an extent that the over 60’s are now the fastest growing divorce group in the UK.
A variety of reasons have been suggested, including a reduction in the stigma surrounding divorce and couples no longer feeling obliged to stay together if their attitudes and needs change.
However, figures released by the ONS in June 2012 revealed that marriages involving older people were also rising faster than for other age groups – up by 21% for women and by 25% for men in their late sixties. Re-partnership is likely to be even higher than these figures suggest, as older people in a new relationship may not choose to remarry.
During the event the discussion explored a number of themes, including:
What factors have contributed to the rising rate of divorce amongst the over 60s?
How can older people’s relationships be better supported?
What challenges does ageing present to relationships?
How do care responsibilities effect relationships?
What are the potential ramifications of older couples separating?
AEGON Retirement Readiness Survey conducted in 2012, where participants from Netherlands were surveyed to find out what their retirement preparedness is.
Goldmine Media\'s efactsheets bundle will enable your business to generate further new business opportunities and add another layer of interaction, whether you\'re engaging with your business audiences online, by email or face-to-face.
The 22 efactsheets feature articles that include protection, both personal and business, retirement and investment planning and Inheritance Tax Planning).
Life assurance
Term assurance
Whole-of-life cover
Critical illness cover
Income protection insurance
Achieving financial security and independence
Financial Protection for you and your family
Making a will
Wealth protection
Business protection
Building a bigger retirement income
More than six million Britons over-50 look set to
retire on less than minimum wage
Financial independence
Self-Invested personal pensions
Pension consolidation
Planning for retirement
Buying an annuity
Wealth creation
The value of insurance to protect you income
Estate Planning
Is it time to get more flexible with your money?
Reducing your investment risk
America's Retirement Safety Net and information for you to understand the social security, medicare and financial needs after retirement. For more topics you can visit our other flipbooks at http://www.ferrettafinancialservices.com/sitemap.htm .
Happy reading:-
Throughout 2014, ILC-UK, supported by specialist insurance company, Partnership Assurance Group plc, is undertaking a series of events to explore the relationship between our changing demography and public policy.
The fourth event in this 'Population Patterns Seminar Series' considered the findings of our ‘Factpack’ of UK demographic statistics.
We all know that people are living longer but how is that likely to change our society? How will pensions be affected? How will we care for our growing older society when the traditional “working age” population is shrinking?
These types of debates are increasingly being played out in the media and in political circles but in order for such debates to be productive, they have to be well informed.
ILC-UK believes its 2014 ‘Factpack’ will support this process by highlighting the most recent evidence of our rapidly ageing society. Not only does it provide statistics on a range of critical topics from life expectancy to housing supply; and pensions to long-term care, it also includes a special focus on the current and potential future state of pensioner poverty.
The event was chaired by Baroness Sally Greengross (ILC-UK) with a welcome from Steve Haberman (Dean of the Cass Business School). We were delighted that Gregg McClymont MP, Shadow Minister (Work and Pensions), spoke at at the launch event. We also heard presentations from Professor Les Mayhew (Professor of Statistics, Cass Business School), Steve Groves (Chief Executive of Partnership), Ben Franklin (Research Fellow at ILC-UK) and a response from Tom Younger of the Department for Work and Pensions.
During the discussion we explored:
How the UK’s demography has changed since the release of the 2013 Factpack and how it might change in the future,
How demographic change is reshaping our society,
The challenge of pensioner poverty,
Regional variations in the experiences of older people,
How policy makers should respond to these findings.
Agenda
16:00 - 16:30 Registration
16:30 - 16:35 Welcome by Chair, Baroness Sally Greengross (ILC-UK)
16:35 - 16:40 Welcome by the Dean of Cass Business School, Professor Stete Habberman
16:40 - 16:50 Presentation from Richard Willets (Partnership)
16:50 - 17:10 Presentation from Gregg McClymont MP (Shadow Minister for Work and Pensions)
17:10 - 17:20 Presentation from Ben Franklin (ILC-UK)
17:20 - 17:30 Presentation from Professor Les Mayhew (Cass Business School) Presentation
17:30 - 17:35 Response from Tom Younger (Department for Work and Pensions)
17:35 - 18:25 Discussion/Q&A
18:25 - 18:30 Close by Chair, Baroness Sally Greengross (ILC-UK)
18:30 - 19:15 Drinks reception
When it comes to planning for retirement, the earlier you start, the more potential your money has to grow. Retirement planning is not simply about paying regularly into your pension and forgetting about it. Instead, it is essential to review your progress against your retirement goals and take account of changes that may affect your plans. For more information visit https://www.tudorfranklin.co.uk
Singapore is facing an aging population as the post-war baby boom generation reaches age 65 by 2030, birth rates have declined, and lifespans have increased. This will strain social services and the workforce as fewer young people support more elderly. A multi-pronged approach is needed, including individual responsibility through health and financial planning, family support, community help, and government support like healthcare subsidies and the Central Provident Fund retirement scheme.
Making your money last in retirement - Aviva's longevity reportAviva plc
In our making your money last in retirement special report we compare and consider consumer attitudes to the facts about longevity, and make some clear recommendations about how the government and the industry must respond.
Making your money last in retirement - Aviva's longevity reportAviva plc
In our making your money last in retirement special report we compare and consider consumer attitudes to the facts about longevity, and make some clear recommendations about how the government and the industry must respond.
The document discusses the upcoming pension reforms in the UK and their anticipated impact. It explores why reforms are needed due to an aging population, lack of retirement savings, and other factors. It then analyzes the potential challenges to the success of the reforms, such as younger generations prioritizing other expenses, rising personal debt levels, and affordability issues. While the reforms aim to encourage more retirement savings, changing perceptions and building trust in pensions will be important for their long-term effectiveness.
Retirement Reimagined: Longevity and the Future of Financial Well-BeingCognizant
As life expectancies grow, banks and insurers need to deliver products and services that provide people with financial security throughout their extended sunset years. Here’s how the financial services industry can remain relevant and vital as life journeys elongate and grow more fluid.
VISUALISING AGING PARENTS & THEIR CLOSE CARERS LIFE JOURNEY IN AGING ECONOMYIAEME Publication
Our life journey, in general, is closely defined by the way we understand the meaning of why we coexist and deal with its challenges. As we develop the "inspiration economy", we could say that nearly all of the challenges we have faced are opportunities that help us to discover the rest of our journey. In this note paper, we explore how being faced with the opportunity of being a close carer for an aging parent with dementia brought intangible discoveries that changed our insight of the meaning of the rest of our life journey.
This document summarizes a discussion on raising pension contribution rates in the UK. It discusses how longevity has increased the ratio of time spent in retirement to time spent working. To achieve adequate retirement incomes, both high participation rates in pensions as well as adequate contribution rates are needed. Currently, reforms have focused on participation rates, but contribution rates of 8% of earnings may not be enough. Raising contribution rates could involve increasing regulations on minimum contributions, improving education, using incentives, or nudges like automatically increasing contribution rates over time. Both employee and employer contribution rates may need to increase, but this requires balancing adequacy with preventing increased opt-outs.
This document discusses the concepts of adequacy and sustainability of pension systems from the perspective of the International Labour Organization (ILO). It addresses how societies define adequate pensions, balancing adequacy with sustainability lessons from reforms in Europe, and how to close global coverage gaps. Key points include: adequacy is defined nationally based on social contracts; European reforms have focused on sustainability but reduced future benefit levels; non-contributory pensions are important to protect those with broken careers and lower incomes from poverty; and expanding non-contributory pensions is critical to closing global coverage gaps and providing basic income security to the growing elderly population in developing regions.
Journal of Economic Perspectives—Volume 19, Number 2—Spring 20.docxtawnyataylor528
Journal of Economic Perspectives—Volume 19, Number 2—Spring 2005—Pages 11–32
Saving Social Security
Peter A. Diamond and Peter R. Orszag
F or almost 70 years, Social Security has provided retirees with a basic level ofincome that is protected against inflation, financial market fluctuations andthe risk of outliving one’s assets. It protects against other risks as well, such
as disability or the death of a family wage earner. In addition, through its progres-
sive structure, Social Security provides some protection against one’s career not
turning out well. Social Security plays a critical role in providing financial security
during retirement: It provides the majority of income for two-thirds of elderly
beneficiaries, and all income for 20 percent of elderly beneficiaries.
Over the next 75 years, Social Security costs are projected to rise by about
2.5 percent of Gross Domestic Product (GDP), while revenues are projected to
decline slightly as a share of GDP. Social Security’s long-term financial health can
be restored through either minor adjustments or major surgery. In our view, major
surgery is neither warranted nor desirable—sustainable solvency and improved
social insurance can be accomplished by a progressive reform that combines
modest benefit reductions and revenue increases (as presented in more detail in
Diamond and Orszag, 2004).
We begin by describing some benefit improvements for vulnerable groups for
which there appears to be wide support, including from the President’s Commis-
sion to Strengthen Social Security (2001) appointed by President Bush. We then
discuss our proposed benefit and tax changes to close the underlying Social
Security deficit and finance these important social insurance improvements. We
also examine plans that replace part of Social Security with individual accounts,
explaining why, in our view, such a course would not represent sound policy.
y Peter A. Diamond is Institute Professor, Massachusetts Institute of Technology, Cambridge,
Massachusetts. Peter R. Orszag is the Joseph A. Pechman Senior Fellow in Economic Studies,
The Brookings Institution, Washington, D.C.
12 Journal of Economic Perspectives
Improving Social Insurance
We begin by focusing on a small number of particularly vulnerable beneficiary
types, following the lead of President Bush’s Commission to Strengthen Social
Security (2001) and others.1
First, workers with low lifetime earnings often live in poverty during retirement
despite Social Security’s progressive benefit formula. In 1993, taking into account
all sources of income, 9 percent of retired worker beneficiaries lived in poverty. Of
these poor retired worker beneficiaries, 10 percent had worked for 41 or more
years in employment covered by Social Security, and more than 40 percent had
worked between 20 and 40 years. In other words, many workers who have had
substantial connections to the work force throughout their careers nonetheless face
poverty in retirement. Our plan ...
This report lets you see for yourself what others
think and feel about their retirement. I hope it will
also encourage some readers to take more control
of their own financial future. The ability to shape your
retirement is in your own hands with the power
of planning.
Whartonstudyonincomeannuities1 150606231836-lva1-app6891Dave Regis
This document summarizes recommendations from economic studies on how retirees should invest lump sums at retirement. It finds that annuitizing a substantial portion is generally optimal. Specifically:
1. Annuitize enough to cover minimum living expenses not covered by Social Security or pensions.
2. Annuitize a significant portion of remaining savings for longevity insurance, while investing the rest in stocks and bonds. How much depends on individual factors.
3. Consider annuities with riders to cover potential large healthcare or long-term care costs later in retirement.
This document summarizes recommendations from economic studies on how retirees should invest lump sums at retirement. It finds that annuitizing a substantial portion is generally optimal. Specifically:
1. Annuitize enough to cover minimum living expenses not covered by Social Security or pensions.
2. Annuitize a significant portion of remaining savings for longevity insurance, while investing the rest in stocks and bonds. How much depends on individual factors.
3. Consider annuities with riders to cover potential large healthcare or long-term care costs later in retirement.
Retirement has changed significantly from a reprieve from work to a continuation of work years due to various financial pressures. Factors influencing retirement decisions include health, finances, lifestyle preferences, and ability to perform a job. With increasing lifespans, retirement planning must account for potentially high healthcare costs. Many baby boomers are choosing to delay full retirement in order to maintain income and independence in the face of dwindling social security funds. Employers are also adapting to aging workforces through modified training programs. Comprehensive reforms are needed to address the impending challenges of supporting larger retired populations.
This document discusses reforms to the Social Security program in the United States. It notes that Social Security is projected to run out of funds by 2033 due to increasing life expectancies and fewer workers paying into the system compared to retirees receiving benefits. The document proposes means-testing Social Security by gradually phasing out benefits for high-income earners over $50,000 to help close the program's funding gap and extend its solvency by reducing projected shortfalls by around 75%. This phaseout plan aims to target benefits to those most in need while keeping Social Security funded for future generations.
Reimagining Retirement: Longevity and the Future of Financial ServicesCognizant
As life expectancies grow, here's how banks and insurers can deliver products and services that provide people with financial
security throughout their extended sunset years.
Although symptoms can vary widely, the first problem many people notice is forgetfulness severe enough to affect their ability to function at home or at work or to enjoy lifelong hobbies.
Old age healthcare security an urgent need for the ageing urban populationHealthcare consultant
In the dusk of their life, an alarming number of India's ninety one million sixty-plus population is suffering from loneliness, neglect, depression, physical and mental abuse and a plethora of diseases without proper medical care. Often enough, the senior citizens' help lines are the only support the old people have in teeming metropolises like Hyderabad, Bangalore, Mumbai, Kolkatta, Delhi etc.Property disputes and financial concerns are the main causes of abuse of the elderly, with the youth often perceiving them as a burden. The help lines promise the senior citizens seeking help absolute confidentiality and carry out social intervention to solve the problem, Many of the elderly have lost their spouses. Their friends and relatives circles also narrow down as disease and death take their toll. There has been a spurt in suicides by the elderly as increased loneliness, depression, disease and lack of care induces a sense of helplessness amongst them.
This document outlines three major paradigm shifts that will impact society in the 21st century: 1) A disproportionately large elderly population as baby boomers retire, straining social programs. 2) Increased life expectancy, requiring longer retirements and placing greater financial burden. 3) Transition to a knowledge-based workforce as physical labor is replaced by technology, requiring different job skills. The key message is that individuals need to take control of their financial planning and not rely solely on government programs to fund longer retirements in this changing environment.
Virtual report launch: Slipping between the cracks? Retirement income prospec...ILC- UK
Find out more and see a recording of the event here: https://ilcuk.org.uk/report-launch-the-forgotten-generation-retirement-income-prospects-of-generation-x/
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Happily ever after... or until we run out of money. Effects of longevity on financial vulnerability
1. Cheerfully ever after ...
or until we run out of money. Effects of longevity on financial vulnerability.
Magda Malec, Krzysztof Makarski, Joanna Tyrowicz
ING Think Forward Innitative 2018
FAME|GRAPE
2. Living longer is good news, but brings about important challenges
We all think that we are cautious and take proper care of our relatives
and our own future. People make precautionary savings and employ
various strategies to make sure they are not out of money when the
situation becomes dire. Choices differ between people, depending on
financial situation, degree of optimism and attitude towards risk, but
we all like to think we came up with a smart way to secure our future.
However, a high fraction of elderly individuals cannot afford necessary
out-of-pocket health expenditure towards the end of their life. As ar-
gued by Marshal et al. (2011), the elderly from the bottom quartile
of income have out-of-pocket expenditure by roughly 30% lower than
the median. Since the out-of-pocket expenditures cover items such
as prescription drugs, home health care and helpers and physiother-
apy, all of which were shown to have substantial effect on longevity
(Hemmelgarn et al. 2007, Mohile et al. 2015, Lilley et al. 2016).
How to make the right decision? One way to think about it is to
take into account life expectancy: how much longer is my individual
birth cohort expected to live? However, with growing longevity, the life
expectancy as observed among current elderly individuals substantially
understates the life expectancy to be experienced by current young and
middle-aged individuals. Within the horizon of the coming 20 years,
an average 65 year old will expect to live for 5-7 years longer than a
person who turns 65 currently, often in good health. This impressive
increase in life expectancy at older ages comes also with improved
health and thus potentially brings about quality years of life.
Obviously, unless we are able to fully internalize the consequences of
increased longevity, we are all running the risk of saving too little. After
all, living 5 years longer than our grandparents is roughly 30% longer
retirement period than they had a chance to experience! Consequently,
longevity increases financial vulnerability of the elderly: if savings are
insufficient to supplement consumption after leaving the labor market,
as we age, we run a greater risk of old age poverty.
This risk will be more acute in the case of countries which implemented
a defined contribution pension system. Many Central and Eastern Eu-
ropean countries implemented in late 1990s or early 2000s a pension
system reform which yields substantially lower pension benefits, rela-
tive to those paid contemporaneously to the retirees. These reforms
were introduced with the objective to immunize the pension systems
against longevity, which makes their fiscal stance more viable in the
long run, but at the cost of large decline in pension benefits.
The currently working generations in those countries are then likely to
experience two negative surprises at once. First, their pension benefits
will be lower than currently observed. Second, their own savings will
have to last over a longer life expectancy. As a consequence one should
expect high poverty rates among the elderly and pensioners financial
vulnerability.
The lower than currently observed pension benefits should trigger ad-
justments in private voluntary saving behavior: being smart and for-
ward looking, we should take the necessary steps to account for future
financial needs. However, even with lower longevity individuals have
been demonstrated to save too little. We think we are going to save
more tomorrow, when indulging our today craving for current con-
sumption. A way to address this issue is to provide individuals with
smart incentives, instruments that can encourage responsible saving
strategies. Against this background, our report provides answers to
the following four questions:
□ What is the scope of old-age poverty rise due to the
increased longevity?
□ What are the consequences of longevity for inequality?
□ What can be done to contain the old age poverty?
□ How would it affect inequality?
FAME|GRAPE || ING Think Forward Initiative || 2018 1
3. Four questions about old age poverty and longevity
□ What is the scope of old age poverty rise due to the increased longevity?
□ What are the consequences of longevity for inequality?
□ What can be done to contain the old age poverty?
□ How would it affect inequality?
FAME|GRAPE || ING Think Forward Initiative || 2018 2
4. Longevity matters for poverty more in defined contribution systems
Higher life expectancy, that we are all glad to observe in the future, is associated with two important changes. First, a smaller fraction of us will be
at risk of not making it to the old age. This improvement owes to healthier life styles, better diagnostics of cardiovascular diseases and more
effective treatment techniques for many diseases which in the past resulted in prime age mortality. Second, a larger fraction of us will enjoy more
than 20 years after 60th birthday. While in the 1960s only few percent of those who made it to the 60th birthday, blew 80 candles as well, in the
years to come this fraction will exceed 70%. In fact, of the generation born around the 2000s, 86% will reach the age of 65 and life expectancy at
65th birthday is projected to be roughly 20 more years for men and 23 years for women.
Longer life means that a larger number of years will be spent in retire-
ment. In pension systems which pay out a fixed share of pre-retirement
earnings (the so-called defined benefit systems, DB), longevity implies
higher fiscal costs: more pensions will be paid out to each retiree. In
pension systems which pay out what was contributed during the work-
ing years (the so-called defined contribution systems, DC), longevity
implies low pensions. How low they become depends on how the in-
crease in life expectancy is split between years of working longer (and
thus contributing more) and years spent in retirement (and thus col-
lecting pension benefits).
For example, an average 30 year old in 2015 expects to live for another
50 years. Of this time, an average representative of the Millennials
generation is likely to spend about 25-30 years working and another
25 years in retirement. In a DB pension system, a quarter of a century
in retirement means a huge fiscal cost, so perhaps our Millennial should
worry about tax raises, but the pension benefit would be the same as
we see with our grandparents today: roughly 60% of their average
monthly earnings.
Meanwhile, in a DC pension system, such proportion between working
years and years in retirement implies that contributing about 20% of
wages for old age benefits, one can expect a replacement rate of no
more than roughly 30% of their average monthly earnings. That is
pension benefits will be no more than a half of what we see currently,
relative to earnings.
In fact, for the generations who reach old age currently, private con-
sumption continues to be high, whereas with the aging increases the
role of public consumption of the health care services (Istenic et al.
2017). It is rare at all that the individual consumption would de-
cline substantially around the retirement age. In the future, decline in
consumption may come as a shock.
For high earning professionals, effectively holding a well paid job all
their lives, 30% of their average annual earnings can still be enough
to support a satisfactory life-style, even if it is then substantially lower
than during the years of active professional career. Naturally, the out-
of-pocket health care expenditure of several thousand euros per month
may be impossible, thus limiting their life expectancy, let alone quality
of life towards the old age. Yet, making the ends meet for a greater part
of old age seems feasible. However, for many individuals the 30 years
of career may comprise some periods of career interruptions (such as
job-seeking or inactivity) as well as periods of relatively lower earnings.
Given potentially lower labor market attachment and earnings, many
individuals will become at risk of poverty.
Once we account for that heterogeneity, we can simulate the future
evolution of poverty and old age poverty in the decades to come, as
longevity progresses. We do that for 6 Central European economies,
because they all replaced a DB system with a DC one at the turn
of the millennia, which means that all of the Millennials will collect
pensions from a defined contribution pension system.
FAME|GRAPE || ING Think Forward Initiative || 2018 3
5. Four questions about old age poverty and longevity
□ What is the scope of old age poverty rise due to the increased longevity?
□ What are the consequences of longevity for inequality?
□ What can be done to contain the old age poverty?
□ How would it affect inequality?
FAME|GRAPE || ING Think Forward Initiative || 2018 4
6. Stronger incentives contribute to income inequality in DC pension systems
An important consequence of replacing the defined benefit with de-
fined contribution pension systems relates to labor market incentives.
With defined benefit systems, there are only direct incentives to work:
the wages. The contributions paid on the earned income are effec-
tively a tax: our social selves know that this is social contribution and
inter-generation exchange, but our economic selves view social secu-
rity contribution as a pure tax, because pension benefits do not grow
in the contributions. However, with the defined contribution systems,
there are also indirect incentives to work, because the more we con-
tribute to the pension system, the higher the future pensions. These
stronger labor market incentives are one of the reasons why defined
contribution systems are believed to deliver higher economic efficiency.
.25
.3
.35
.4
.45
Gini
2000 2020 2040 2060 2080
year
Bulgaria Czech Hungary
Poland Romania Slovakia
Income inequality
Definitions in figure: Income inequality measured by Gini ratio. Income definition
includes earned income and pension benefits, but excludes capital gains. The
computed inequality measure includes weights for population structures.
The extent to which individuals respond to these indirect incentives
are heterogeneous. Those individuals, who are free to increase labor
supply will likely do so after the reform, in order to fully internalize
the benefits of higher pension benefits in the old age from higher con-
tributions during prime-age. Meanwhile, for some individuals higher
number of working hours may continue to be impossible despite the
favorable incentives. There can also be a group that does not spot
the stronger incentives and thus does not adjust behavior in any way
despite a change in pension system. Hence, reforming the pension
system increases income inequality via labor supply decisions.
The stronger labor market incentives, coupled with longevity, have
large effects on income inequality.Indeed, in absence of longevity, in-
come inequality could decline, as all individuals are subjected to the
stronger incentives of the defined contribution system. This appears
to be the case of Poland, Bulgaria and to a lesser extent also Hungary.
The heterogeneous reaction to the stronger incentives contributes to
larger income inequality in Czech Republic, Slovakia and Romania.
These diverse paths of income inequality reflect the fact that the abil-
ity to adjust labor supply across these countries differs.
Longevity leads universally to a substantial increase in income inequal-
ity. The Gini ratio for income inequality will increase by at least 4 per-
centage points and in some countries as much as 14 percentage points.
This rise is substantially bigger than experienced by those countries
when transitioning from central planning to a market economy. These
large income effects contribute to higher poverty for those individuals,
whose labor supply did not increase in reaction to the reform. Hence,
the overall rise in poverty rates after replacing DB with DC systems
stems from two sources: lowering pension benefits under longevity in
the DC scheme and growing income inequality.
The reason why the increase in inequality flattens out towards the
end of the simulated period is due to the fact that the extension in
expected lifetime duration is gradually slower.
FAME|GRAPE || ING Think Forward Initiative || 2018 5
7. A rational response to longevity and its consequences for wealth inequality
When expecting low effective replacement rates from the public pen-
sion system, accumulating private savings is a way to take precautions.
This private and voluntary pension wealth, can then be used to co-
finance old age consumption and thus cushion the decline of living
standards at retirement when low pension benefits replace earned in-
come.
The scope and direction of changes in savings patterns will depend on
the extent to which one is willing to give up current consumption in
exchange for a lower decline in consumption at old age. Some indi-
viduals particularly value smooth lifetime path of living standards and
are thus willing to accumulate more savings. Some other individu-
als prefer to take out substantial loans to smooth consumption over
lifetime. For others, low consumption in the future is not enough of
a driver for current decision making. This is portrayed by solid lines
in the upper graph. Expecting decline in pensions due to increase in
life expectancy, some households accumulate more private, voluntary
savings, but for others it is optimal to continue with some level of
indebtedness. This is portrayed by dashed lines in the upper graph.
The net effect of these changes depends on the population structure
and country-specific distribution of preferences. In all six countries
majority of social groups will substantially increase savings. However,
in Bulgaria and especially in Poland, debt taking intensifies as well.
Upper graph: Solid lines portray life cycle savings behavior of current generation,
dashed lines portray savings behavior of people born 60 years from now. Thin lines
represent individuals with limited ability to save for old age consumption, while thick
lines represent individuals with ability and preference to save for old age
consumption. The effective retirement age is country-specific, see p. 20.
Lower graph: Life cycle savings behavior of individuals with different levels of
abilities and preferences. The scatter plots savings behaviors of social groups within
current generation (horizontal axis) and future generation (vertical axis).
0
20 40 60 80 100
age
Bulgaria
0
20 40 60 80 100
age
Czech
0
20 40 60 80 100
age
Hungary
0
20 40 60 80 100
age
Poland
0
20 40 60 80 100
age
Romania
0
20 40 60 80 100
age
Slovakia
Evolution of wealth accumulation over the life−cycle
45 degree line
0
50
100
0 10 20 30 40 50
Bulgaria
45 degree line
0
20
40
60
80
100
0 10 20 30 40 50
Czech
45 degree line
0
20
40
60
80
100
0 20 40 60
Hungary
45 degree line
−10
0
10
20
30
0 5 10 15
Poland
45 degree line
0
10
20
30
−5 0 5 10 15
Romania
45 degree line
0
20
40
60
...amonggenerationborn60yearsfromnow
0 10 20 30
... among current generation
Slovakia
distribution of assets ...
FAME|GRAPE || ING Think Forward Initiative || 2018 6
8. Country-specific changes in wealth inequality patterns
Two effects are at play. First, savings behavior changes with longevity,
as we discussed above, displaying the life time patterns of saving and
dissaving. Second, due to aging, the population structure changes: a
higher share of living individuals are those who accumulated savings
for co-financing the old age consumption, whereas a smaller fraction
of populations are those individuals who are at the beginning of their
working career. The joint realization of these two effects determines
changes in aggregate inequality.
Indeed, the direction and path of change in wealth inequality is not
preconceived. While the preferences and abilities of individuals do not
change in our simulations, longevity translates differently to behaviors,
yielding disparity in terms of wealth accumulation. Some social groups
increase savings, whereas others do not, which, jointly with changing
population structure, drives changes in wealth inequality. The increase
in wealth accumulation occurs in many social groups in all 6 countries,
but the rate of increase and rate of aging jointly determine the speed
and scale of adjustment in wealth inequality.
Wealth inequality increases in Poland, remains stable in Bulgaria and
declines in the remaining 4 countries: Czech Republic, Hungary, Ro-
mania and Slovakia. Behind growth in inequality lies the persistent
indebtedness of some social groups in Poland and to a smaller extent
in Bulgaria. Noticeably, indebtedness in the 4 countries is low already
with current life expectancy and will further decline with longevity.
Meanwhile, in Poland it is high and will increase with longevity.
An increase in indebtedness and persistently low consumption path
show that with longevity, position of the vulnerable groups worsens
relative to what is observed currently. Further decline in voluntary
savings and high indebtedness raise even more the relevance of social
as well as macroprudential risks. Meanwhile, further increase in wealth
accumulation is bound to increase liquidity in the financial system,
ushering the risk of excessively lax regulation on credit.
The waves of changes in wealth inequality are associated with the de-
mographic waves: post-war baby boomers, early 1980s fertility boom,
etc. These waves result in unequal size of the subsequent cohorts and
thus translate to waves in inequality savings as observed in given point
in time. Note, that declining or increasing aggregate inequality need
not imply that within a given birth cohort wealth disparity widens.
Even if this channel was not operational, aging of the societies would
yield changes of wealth inequality.
.5
.55
.6
.65
.7
Gini
2000 2020 2040 2060 2080
year
Bulgaria Czech Hungary
Poland Romania Slovakia
Wealth inequality
Definitions in figures: Wealth inequality measured by Gini ratio. Wealth definition
includes private voluntary savings, i.e. the share of income not spent on
consumption, with accrued interest. Households are allowed to hold negative assets
(debt), but are constrained not to leave debt on subsequent generations. The initial
ratios were set to match the observed wealth inequality as observed prior to the
reform in these economies, weighted for population structures.
FAME|GRAPE || ING Think Forward Initiative || 2018 7
9. Longevity affects consumption inequality as well
Households which want to cushion a decline in consumption, observ-
ing longer life expectancy, need to increase savings. Even those with
low income levels will reduce consumption further. This process implies
that increased longevity will be associated with an increased consump-
tion inequality.
Moreover, the households that decide not to make precautions for
the low pension benefits, will experience low consumption during old
age. This phenomenon will increase the dispersion of consumption as
observed in the economy at any given point in time, thus contributing
to increasing measures of consumption inequality measures.
.2
.25
.3
.35
.4
Gini
2000 2020 2040 2060 2080
year
Bulgaria Czech Hungary
Poland Romania Slovakia
Consumption inequality
These two effects result in increased consumption inequality in addi-
tion to wealth inequality. Consumption inequality increases in the six
analyzed countries by roughly 3-5 percentage points when measured
by Gini ratio. This magnitude of the effect is substantially larger than
an increase in consumption inequality as observed by Spain or Greece
during the global financial crisis. Naturally, this increase is gradual, as
opposed to changes in inequality caused by business cycle fluctuations
and thus may be masked by short-run fluctuations.
Notably, growth in consumption inequality is smaller than the growth
in income inequality. This finding stems from the fact that households
smooth consumption over lifetime, hence avoiding extreme outcomes
such as high consumption in prime-age and low consumption in old
age. Even if this smoothing is not possible to the full extent for those
households who have constraints on the ability to save, the effects for
consumption inequality will be lower than for income or wealth.
Note that in our setup, households are free to reduce consumption as
much as they deem optimal, i.e. there is no threshold for subsistence
consumption. Neither do we model the actual minimum existence
costs, such as those captured by equivalence scales for absolute poverty
measures. Therefore, our measure of consumption inequality is the
lower bound. If it were the case that in a perfectly elastic world
households were choosing consumption levels below those that are
feasible in the real world, then the actual increase in consumption
inequality will be larger than forecast here.
Definitions in figure: Consumption inequality measured by Gini ratio. Consumption
definition includes all current household consumption. The initial values match
consumption inequality as observed in these countries prior to the introduction of the
pension system reform from a DB to a DC system. The computed inequality
measure includes weights for population structures.
FAME|GRAPE || ING Think Forward Initiative || 2018 8
10. Four questions about old age poverty and longevity
□ What is the scope of old age poverty rise due to the increased longevity?
□ What are the consequences of longevity for inequality?
□ What can be done to contain the old age poverty?
□ How would it affect inequality?
FAME|GRAPE || ING Think Forward Initiative || 2018 9
11. People do not save enough for their retirement
Conventional economic models predict that people smooth consump-
tion over life cycle, hence rational old age poverty is only consistent
with extremely high preference for immediate consumption. However,
as has been demonstrated by survey and health studies, people do
not save “enough” for retirement. One important source of these in-
sufficient savings is the unforeseen and largely unexpected increase in
longevity. The other important source is of behavioral nature: setting
and carrying out the savings plan is difficult, requires self-control and
consistency over a long horizon (Benartzi and Thaler 2004). Typically,
a middle-class individual or a couple saves for retirement in two ways:
home ownership and compulsory state-run pension systems.
In the case of housing wealth, self-control is of secondary relevance.
Mortgage payments are claimed regularly by the banks who lent the
money for buying the property. Whether it is efficient to pay interest
on pension savings is naturally an open question, but one does not need
to demonstrate self-control and consistency to accumulate wealth that
can be used to co-finance consumption during old age.
In the case of the public pension systems self-control is not that rele-
vant either: every month the pay check that arrives from the employer
is already net of social security contributions, hence one does not even
“feel” accumulating pension wealth. Indeed, public pension schemes
are one of the so-called low-willpower savings techniques (Gustman
and Steinmeier 1998).
However, with longevity the savings in household and pension wealth
are likely to fall short of desirable savings in the old age. The first
hurdle occurs already at calculating ex ante, how much saving is de-
sirable. Financial literacy on average is too low to let individuals com-
pute the desirable level of wealth accumulation. Without these tools,
individuals go for either of the two extremes: minimum to satisfy the
eligibility criteria or maximum allowed by the legal regulations (Be-
nartzi and Thaler 2004). There is no reason for this value to be the
optimal level of savings.
The second hurdle concerns self-control and will-power. Choi et al.
(2004) show that even people who deem their savings too low and
declare a resolution, usually fail to do so: 86% of the individuals
failed to save more despite expressing a will to do so within a quarter.
Procrastination (sometimes referred to as hyperbolic discounting) is
one of the important reasons behind undersaving. People unjustifiably
assume that “tomorrow” they will do what they should have done
“today” – a mechanism that reflects in time-inconsistent decisions,
because, as “tomorrow” comes, it becomes “today”.
Another reason why sticking to an original saving plan may be difficult
is called status quo bias (Samuelson and Zeckhauser 1988). Retire-
ment plans choices reveal that people are biased to do nothing or
maintain current course of action. Therefore, they react too little to
information about expanding life expectancy or declining rates of re-
turn on accumulated savings. In the face of actuarial information, 75%
of people do not increase retirement saving even though they judge
their savings to be too low.
Saving more may also be unpleasant. Kahneman and Tversky (1992)
argued that people are loss averse – we have a tendency to regret
losses much more than we appreciate gains more than regret losses.
Since setting more disposable income aside for old age consumption
appears to be a loss of current consumption, people are reluctant to
save more.
Given this multiplicity of reasons, one should expect that a substantial
fraction of population saves too little relative to their preferred path
of life time consumption. Our objective here is to analyzewhat would
happen if suddenly everybody gained ability and taste for responsible
old age saving. We do not change the aggregate preferences in the
societies: those societies who are more patient and thus generally have
higher savings and investment rate remain so. What we do change,
though, is to equalize the access to the instruments which permit
smooth lifetime consumption.
FAME|GRAPE || ING Think Forward Initiative || 2018 10
12. Fostering equal access to saving instruments reduces (old age) poverty
In the six analyzed economies, individuals have heterogeneous ability
save – unequal access to financial instruments. Prior to reforming the
pension system, we assume that some individuals were able to con-
sistently put aside a higher fraction of their income. Pension system
reform provides incentives to both increase hours worked and raise the
share of earned income set aside for old age consumption. These in-
centives interact with longevity, changing the optimal set of decisions.
We run two scenarios. In the first scenario, all individuals live longer
and receive pensions from a new pension system with unequal access
to financial instruments. In the second scenario, we additionally make
access to financial instruments universal for everyone.
Fostering equal access to saving instruments reduces (old age) poverty
in all six analyzed countries. Solid lines portray the evolution of old
age poverty if the ability to save remains as unequal as we find in the
data in late 1990s in the six analyzed economies. The dashed lines
show what would happen if suddenly access to financial services was
perfectly equal across all the social groups in these six countries. Equal
access does not need to imply that everybody saves the same amount,
quite the opposite, savings continue to reflect preferences for smooth
lifetime consumption as well as expected longevity and macroeconomic
tendencies. Effectively, the dashed lines portray the evolution of old
age poverty if there are no frictions, limitations, constraints or privi-
leges in accessing savings instruments.
Reduction in poverty is large enough to counterweight otherwise domi-
nant trends related to longevity. The fact that equal access to financial
instruments outweighs the effects of demographic processes shows the
scope for potential policy to mitigate old age poverty.
Definitions in figure: Consumption poverty measured as a share of households with
consumption below 60% of median consumption. Old age poverty measured as share
of old age poor among poor. The initial values match poverty levels as observed in
the six countries prior to the introduction of the pension system reform from a DB to
a DC system. The inequality measure includes weights for population.
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Bulgaria
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Czech
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Hungary
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Poland
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Romania
.05
.1
.15
.2
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Slovakia
Consumption poverty
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Bulgaria
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Czech
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Hungary
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Poland
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Romania
.1
.2
.3
.4
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Slovakia
Consumption old−age poverty
FAME|GRAPE || ING Think Forward Initiative || 2018 11
13. Are there effective ways to nudge people into saving more?
Our scenarios show the outcomes equivalent to effectively equalizing
ability to save for old age consumption. Are there effective ways to
do that? Evidence from the Save More Tomorrow (SMT) experiment
are positive. Benartzi and Thaler (2007) formed savings plans based
on better understanding of decision-making process. The plan is as
simple as it gets and assumes commitment to increasing the savings
in the future (hyperbolic discounting) and at the moment of the pay
raise (loss aversion). The program is administered by employer (self-
control) and individuals are automatically enrolled with the opt-out
option (procrastination and status quo bias). The effects of SMT are
spectacular: 3 years after introducing the plan, the savings rate of the
participants was 370% higher than in other plans.
Another way to address the behavioral challenges are the Prize Linked
Savings (PLS), that is savings accounts which on top of “boring”
interest offer also a lottery-like feature. In each period, one participant
gets to accrue a prize equivalent in value to the premium accrual from
all the participating accounts. Linking the boring (i.e. old age saving)
with the pleasurable and exciting (i.e. lottery with a high prize) helps
to overcome the procrastination and status quo bias, whereas the value
of the prize helps to sustain commitment (Kearney et al. 2010). Well-
established PLS include government-run Premium Bonds in the United
Kingdom and privately-run Million a Month Account (MaMa) in South
Africa. Holders of PLS increase total savings rate by 1% of disposable
income, a 38% growth at the mean (Cole et al. 2017).
Also financial engineering comes in handy. Multiplicity of options dis-
courages people from taking up savings decisions (status quo bias)
whereas the prospect of readjusting their decisions delays taking up
any action (procrastination). Targeted maturity funds may match ma-
turity of the financial portfolio with the expected timing of retirement,
thus embodying the long term commitment (facilitating self-control).
They also replace the prospect of repeated decision-making with a
prospect of high payout at retirement (Sethi et al. 2004).
The advantage of both SMT and PLS is that they are virtually costless
to introduce and administer in a sense that even if some administrative
costs are higher, they do not entail state subsidies to encourage partic-
ipation. Naturally, financial incentives prove useful as well, especially
when combined with the ability to nudge via modern technologies.
In a voluntary savings program in Kenya, participants received reg-
ularly SMS from the government informing them that any deposit
made on that given day will be matched with an additional deposit
by the government to a private account of each participant. In a
control group the same subsidy was offered, but information was dis-
tributed through traditional communication channels. Regular texting
increased propensity to deposit as well the amount of the deposit even
though the subsidy did not depend on the size of the deposit.
Indeed, it appears that many of the savings decisions are actually fast
in the language of Daniel Kahneman (2011). In a field study, he finds
that 75% of people does not readjust portfolio structure for as long as
10 years even if the original decision was instinctive and unreflective. In
fact, financial investment decisions are rarely slow and deliberate, i.e.
when taking up financial obligations people are much more reflective
than when deciding about the allocation of their assets.
This brings about another potential for technology use: given the
ability of social media to design psychological profiles of the users,
they are likely to offer better matched portfolio choices. Subject to
diligent regulation and supervision, offering portfolios based on profiles
could lead to a substantial improvement in assets allocation at virtually
no cost, simply by improving the matching in consumer finance.
These and other methods may be used to equalize access to financial
instruments across social groups, types of households and for individu-
als at all income levels. In order to achieve reduction in old age poverty,
the instruments need to encourage saving, align actual savings path
with an optimal one and facilitate the execution of the savings plan.
FAME|GRAPE || ING Think Forward Initiative || 2018 12
14. Four questions about old age poverty and longevity
□ What is the scope of old age poverty rise due to the increased longevity?
□ What are the consequences of longevity for inequality?
□ Are there private financial instruments to contain the old age poverty?
□ How would it affect inequality?
FAME|GRAPE || ING Think Forward Initiative || 2018 13
15. Fostering equal access to saving instruments reduces wealth inequality
.3
.4
.5
.6
.7
Gini
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Bulgaria
.3
.4
.5
.6
.7
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Czech
.3
.4
.5
.6
.7
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Hungary
.3
.4
.5
.6
.7
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Poland
.3
.4
.5
.6
.7
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Romania
.3
.4
.5
.6
.7
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Slovakia
Wealth inequality
.2
.3
.4
.5
Gini
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Bulgaria
.2
.3
.4
.5
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Czech
.2
.3
.4
.5
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Hungary
.2
.3
.4
.5
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Poland
.2
.3
.4
.5
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Romania
.2
.3
.4
.5
2000 2040 2080
year
unequal access (solid)
equal access (dash)
Slovakia
Income inequality
In addition to a lower risk of the old age poverty, equal access to
financial instruments reduces also substantially wealth inequality. By
removing barriers to saving – as well as the privileges – we let some
of the households to change they behavior pattern. In fact, instead
of consuming their entire income contemporaneously or even being
in-debt, some of the households in our simulation scenarios gain both
access and taste for saving. Meanwhile, those households who saved
a high fraction of income, when no longer in a privileged position
of unique access to saving instruments, somewhat increase contem-
poraneous consumption at the expense of wealth accumulation. As
a consequence, the saving behavior becomes more similar between
the household groups, hence wealth distributions become more com-
pressed.
Substantially lower levels of wealth inequality in our setup are consis-
tent with prior economic research. First, using the case of Sweden,
Domei et al. (2002) and Hurd et al. (2012) show that generosity of
the pension system virtually eliminates the need to use voluntary sav-
ings as a mechanism to smooth consumption over lifetime. Notably,
in countries with generous pension systems, long-term savings is very
low even among households with high earnings in both relative and
absolute terms. Analogously, low pensions – as in our setup – should
foster the need for private voluntary savings, as shown in our model.
The need to save is then mediated by the ability to do so: level of
income, ability to adjust labor supply and access to financial instru-
ments. In our setup, once frictions in access to financial instruments
are removed, households adjust both labor supply and saving behavior,
consistent with their preferences. Reduced wealth inequality implies
that these adjustment result in assets more evenly spread across social
groups and age groups.
Definitions in figure: Wealth inequality measured by Gini ratio. The initial values
match consumption inequality as observed in these countries prior to the
introduction of the pension system reform from a DB to a DC system. The
computed inequality measure includes weights for population structures.
FAME|GRAPE || ING Think Forward Initiative || 2018 14
16. Discussion of the results
Access to old age saving instrument is a concern in many advanced
countries. Even in those countries, where a large fraction of the pop-
ulation has a banking account and uses instruments such as credit
cards and deposits, old age savings instrument may be inaccessible to
the population at large. For example, a deposit in a bank account
usually does not entail incentives for old age savings. Moreover, the
interest rate to be earned on a deposit is substantially below the econ-
omy interest rate, yielding low return to savings and thus reducing
savings. Investing in financial markets in order to construct a portfolio
requires skills and effort inaccessible to population at large. Hedge
funds, investment funds and ETFs, which could potentially substitute
for individual financial portfolios have none of the incentives character-
izing SaveMoreTomorrow or prize-linked savings. Instead they charge
fees, reducing the effective rate of return on savings and thus disin-
centivizing old age saving.
Given these constraints, it is realistic to assume that a fraction of indi-
viduals effectively does not have access to old age savings instruments
and only those who pay particular attention to the future actually ac-
cumulate wealth to smooth consumption. Our simulations show (a)
substantial rise in old age poverty if we continue with this inequality in
access to financial instruments and (b) large potential for improvement
in these frictions are removed and access to old age saving becomes
universal. Our results should be viewed as a range for potential out-
comes if at least a part of currently underprivileged individuals gained
access to old age saving.
Additional gains could be achieved if the saving instruments offered
an annuity. Indeed, a perfect instrument offers convenient saving for
old age consumption and an annuity on these savings, i.e. insurance
against outliving one’s own savings.
Indeed, dissaving decision is no easier than saving decision. People
need to take into account a multiplicity of factors: how fast they want
to draw assets, how much they want to leave as bequests, probability
of negative health shocks, life expectancy, etc. Given how difficult
it is to optimize individually, given the unpredictable nature of all
these factors, ability to acquire insurance against making a mistake
in judgment is of immediate value (Davidoff et al. 2005). Annuity
hedges us against the longevity risk, provides a survivor premium and
raises life time consumption for all.
The problem of old age saving and dissaving in the old age are inti-
mately related. Without accumulated wealth, individuals cannot pur-
chase an annuity. Even with positive but low wealth, and with the
expectation of pension benefits, many individuals may prefer to hold
a liquid asset (e.g. in case of family emergency) than convert the
accumulated savings to annuity.
Despite the benefits of annuity, evidence shows that even affluent in-
dividuals tend to acquire too little of it (Schaus 2005), with reasons
similar to those which underly insufficient old age savings. It is not
about preferences or willingness to take the risk of outliving one’s own
saving, quite the contrary. As discussed by Benartzi et al. (2011), par-
ticularly with a defined contribution pension system the actual choices
depend on institutional factors. Framing effect, poor financial literacy
and loss aversion greatly contribute to disregarding the annuities. For
individuals, transforming pension wealth into a stream of payments
until the end of lifetime is viewed as a loss: large sum of money is
replaced by a small sum of money (even if spread over many periods).
Moreover, annuity reduces risk of outliving one’s own savings, but in-
dividuals tend to worry about dying sooner: from a perspective of an
average retiree, dying sooner than expected is not only a bad luck, but
also a bad investment.
FAME|GRAPE || ING Think Forward Initiative || 2018 15
17. Living longer is good news, but brings about important challenges
□ Summary
FAME|GRAPE || ING Think Forward Initiative || 2018 16
18. Summary
Assuring universal access to savings instruments will not only reduce
poverty and old age poverty, but will also contribute to less unequal
distribution of assets across social groups and generations.
Our objective in this study was to analyze the effects of longevity
on poverty and inequality in six countries Bulgaria, Czech Republic,
Hungary, Poland, Romania and Slovakia. These six countries changed
a defined benefit pension system characteristic for most welfare states
in the post-war era to a defined contribution pension system. Defined
contribution pension system is believed to be more efficient, because
it improves the incentives in the economy: benefits will be equivalent
to what we contribute to the pension system, hence social security
contributions can be viewed as delayed income rather than a tax.
An additional feature of the defined contribution pension systems is
that in response to longevity, the actual per period pension benefits
will be low. The longer the life expectancy at retirement, the larger the
number of periods which need to be financed from the accumulated
pension contributions. Although this effect can be partly alleviated by
extending the working career beyond the current retirement age, pen-
sion benefits from a defined contribution system will be substantially
lower than observed currently from a defined benefit system.
□ What is the scope of old age poverty rise due to the
increased longevity?
□ What are the consequences of longevity for inequality?
Despite the intensifying need to co-finance old age consumption from
private savings, one does not observe increased savings in the six
economies which implemented the reform. We replicate the distribu-
tion of assets across the types of the households from the pre-reform
period and show that the poverty rates will double as the generation of
Millennials retires. In fact, old age poverty will be behind this increase
in poverty in all the six countries.
With the incentives inherent in the defined contribution pension sys-
tem, income and consumption inequality will grow as well. The growth
in inequality is larger than these six countries experienced when tran-
sitioning from centrally planned to market economies.
□ What can be done to contain the old age poverty?
□ How would it affect inequality?
Comparing the model in which many individuals cannot access ad-
equate savings instruments with a model where access to financial
instruments becomes universal, we show that both poverty and in-
equality can be substantially reduced. We show that this result is
universal, i.e. holds for all six countries in the sample, regardless of
their demographic structure and macroeconomic features. Our key re-
sult does not depend on the behavioral reaction to longevity: among
the six analyzed countries longevity raises wealth inequality in Poland,
leaves wealth inequality essentially unaffected in Bulgaria and reduces
wealth inequality in four remaining countries. These differentiated
patterns owe to the differences in deep economic preferences embed-
ded in these countries, such as preference for leisure and aggregate
discounting of the future. Universal access to savings instruments re-
duces wealth inequality to a comparable extent across all these six
countries despite their inherent differences.
The mechanisms behind these processes are both economic and be-
havioral. Longevity implies lower pensions in the defined contribution
system, hence yielding pure economic incentives to raise private volun-
tary savings. In the case of some social groups the lifetime savings will
effectively double. However, behavioral mechanisms at play imply that
many individuals will not make an accurate judgment by how much
should they increase the savings. Moreover, many individuals will be
unable to execute this plan due to a variety of mechanisms such as
status quo bias, procrastination, loss aversion and self-control issues.
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19. Living longer is good news, but brings about important challenges
□ Methodology of the overlapping generations model behind this study
FAME|GRAPE || ING Think Forward Initiative || 2018 18
20. Mechanics of our model
We develop an overlapping generations general equilibrium model, in line with Makarski
et al. (2017). The model uses demographic forecasts for evolution of longevity and
fertility for each of the analyzed six countries. The model follows also European Com-
mission in the country-specific assumptions about the future evolution of the rate of
technological progress.
Households in our model choose how much time to work (the so-called intra-temporal
choice) and how much of the current income to save (the so-called inter-temporal
choice). These choices are made in order to maximize lifetime well-being, which in-
creases with consumption, but declines with labor. Consumers in our model generally
like their life-time path of consumption to be smooth: high consumption in working
period and the extremely low consumption in the old age makes them less happy than a
comparable path of consumption which is spread more equally throughout the life time.
Households in our model are heterogeneous in a sense that households may differ in
their preference for leisure. Hence, in some cases the labor supply will be such that we
assume effectively someone worked full time their whole professional life, while in other
cases the actual share of life worked will be lower. The actual amount of time work
and the share of population with such preference were calibrated closely to replicate the
distribution of working time in the labor market as observed in the Labor Force Survey
data in each of the six analyzed countries.
Households differ also in how productive an hour of their work is, which reflects the
differences in wages as observed in the labor market. We use linked employer-employee
data from the EU Structure of Earnings Survey for each of the analyzed six countries
to replicate the distribution of wages as observed in reality.
Our replications are successful in a sense that for every country our model reproduces
consumption inequality as observed in the data. Namely, our calibration permits to
capture the fact that some households are more affluent than others, in ways that
are similar to actual data. Note that in the data one has both prime age and old age
households, which means that the population structure in the survey data that underlies
the real world estimates of the consumption inequality is similar to what is produced
in our model. We use report by World Bank (2005) as source for information about
consumption inequality.
Finally, households differ in access to financial instruments. In our model this is equiv-
alent to households having different time preference in a sense that some households
actually save a higher share of their income than others. We calibrate this heterogeneity
in such a way that we replicate wealth inequality data as observed in the six analyzed
countries prior to the reform, see Table 1. We follow Davies et al. (2011) as source for
information about wealth inequality.
The key feature of our analysis consists of equalizing the preferences for saving across
the households. In the baseline scenario we keep the heterogeneity in saving behavior
as calibrated to the data. In the reform scenario we check what would happen if the
ability and preference to save became the same among households. The households
continue to differ in productivity and preference for leisure, but faced with the same
inter-temporal options, all households of a given birth cohort will choose to save the
same proportion of their income. Note that because of longevity and general economic
changes, households of different cohorts may still choose different savings as optimal,
because their life expectancy and economic conditions will differ.
The model begins with an economy which has a defined benefit pay-as-you-go system,
as all the six analyzed countries had a system like that. We then implement a change
to a defined contribution pay-as-you-go system, replicating the features of the reforms
in all the six countries. All of these countries honored the pension obligations towards
individuals already in retirement and those who were close to retirement, so also in our
model the implementation of the reform is gradual.
When they reformed their pension systems, the six countries introduced also a capital
pillar to the pension system, but within roughly a decade some of the six analyzed
countries dismantled the capital pillars, while others reduced its size. For simplicity and
due to the low relevance of compulsory capital pillar in the general pension system for
the question at hand, we do not replicate this feature in our model. Namely, the new
pension system is a defined contribution pay-as-you-go system.
Table 1. Wealth inequality (Gini ratio) - data vs model
Country Data Model
Bulgaria 0.65 0.65
Czech 0.63 0.62
Hungary 0.65 0.65
Poland 0.66 0.65
Romania 0.65 0.66
Slovakia 0.63 0.64
FAME|GRAPE || ING Think Forward Initiative || 2018 19
21. Mechanics of our model - continued
The model is calibrated to replicate the macroeconomic features of the six analyzed
economies prior to the introduction of the pension system reform. Using data from
national accounts we know the investment rate in these economies, which helps us to
calibrate the depreciation rate. Using data from the labor force survey, we know the
aggregate labor force participation, which helps us calibrate the aggregate preference
for leisure. We also use the taxation data from the OECD to adequately calibrate the
tax rates for capital, labor and consumption in all six countries to match in the model
the share of those tax revenues in GDP to what was actually observed.
Since these countries were undergoing economic transition, the economic situation was
quite volatile year on year. To avoid the situation that a specific year affects the original
calibrations, we compute 10 year averages for the whole decade prior to the pension
system reform in each country. The interest rate was set at 6.5 %, if capable by others
parameters.
Our model is a general equilibrium model, which means that all of the macroeconomic
variables adjust to changing demographics and behavior of households. For example, as
longevity increases, individual households will decide to save a higher fraction of their
income during the prime age, which will result in change of the capital stock in the
economy, thus affecting labor productivity and interest rates. Indeed, these variables
adjust endogenously in the economy, in response to a new pension system, secular
changes and behavior of the agents.
Also fiscal variables adjust endogenously. We calibrated the taxation in the period
prior to the reform, but once the reform from defined benefit to defined contribution is
implemented in our simulations, the consumption tax adjusts endogenously to satisfy
the government budget constraint. In order to mitigate the potential effects of change
in fiscal policy on the analyzed processes, we assume that the governments continue
with the debt-to-GDP ratios as in the periods prior to the reform, which in most of the
six analyzed countries was close to roughly 45%.
The government needs to adjust taxes for two main reasons. First, it balances the
pension system. We calibrate the pensions from the defined benefit pension system
and the replacement rate to match the share of pensions in GDP as observed in the
six analyzed countries. We calibrate the contribution rate to the compulsory pension
system to match the deficit observed in the six analyzed countries prior to the reform.
Second, the government balances the government expenditure with the revenues such
that the public debt in relation to GDP does not change. The government expenditure
was set to match the data from national accounts on government expenditure share in
GDP. Throughout the simulations this share does not change, because the interest of
the analysis is to isolate the effect of longevity on inequality rather than analyze the
potential scenarios of government expenditure.
Table 2. Calibration of parameters
Calibration Target
Bulgaria Czech Hungary Poland Romania Slovakia
Data Model Data Model Data Model Data Model Data Model Data Model
depreciation rate investment rate 23.9% 23.8% 30.4% 30.7% 24% 23.7% 20.5% 20.5% 20.9% 20.9% 29.8% 30.3%
labor tax revenue as % of GDP 7.6% 7% 9.4% 9.4% 15.3% 15.4 5.5% 5.5% 6.5% 6.5% 7.5% 7.7%
consumption tax revenue as % of GDP 12.5% 12.4% 10% 10.5% 15.3% 15.4% 12.2% 12.2% 10.6% 10.5% 11.6% 11.4%
social security contribution benefits as % of GDP 5.4% 5.4% 5.7% 5.6% 5.9% 5.9% 6.9% 6.9% 6.8% 6.7% 5.3% 5.3%
preference for leisure average hours 56.7% 58.2% 52.6% 52.6% 57.6% 58% 56.8% 56.6% 58.8% 58.1% 53.5% 53.4%
reforming from DB to DC 2002 1996 1998 1999 2004 2003
effective retirement age (OECD) 60 61 59 61 66 58
FAME|GRAPE || ING Think Forward Initiative || 2018 20
22. Living longer is good news, but brings about important challenges
□ References
FAME|GRAPE || ING Think Forward Initiative || 2018 21
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FAME|GRAPE || ING Think Forward Initiative || 2018 22
24. About us
Group for Research in Applied Economics (GRAPE) is an independent,
non-governmental research center operated by Foundation of Admirers
and Mavens of Economics (FAME), based in Warsaw, Poland. We house
a cheerful bunch of accomplished academics and brilliant adepts and focus
on producing high quality academic research. Since foundation in 2011,
FAME|GRAPE develops research programs in economics of inequality,
pension systems, efficiency and misallocation, applied macroeconomics
and cultural economics. Our key goal is to to facilitate academic ex-
change in economics in Poland and co-develop scientific projects interna-
tionally. In the interest of academic integrity and transparency, we strive
to openly share data and methodology.
In addition to scientific research, people at GRAPE translate their aca-
demic experience to addressing social policy issues in Poland. Our pro
bono policy projects are always based on rigorous research and draw on
earlier experience from specific research projects. So far, we’ve published
several policy reports on the subject of Polish pension system, labour
market and school feeding programs. Mainstreaming of research results
and promoting evidence-based-policy stands behind our presence in me-
dia: we write a weekly op-ed for one of the biggest newspaper in Poland
and participate in many policy-oriented events. In policy projects, we
cooperate with The World Bank, OECD, EY and Polish NGOs.
web grape.org.pl tt GRAPE_ORG
mail grape@grape.org.pl fb GRAPE.ORG
Magda Malec
Warsaw School of Economics
Research Assistant at FAME|GRAPE
Krzysztof Makarski, PhD
Warsaw School of Economics | NBP
Co-founder of FAME|GRAPE
Joanna Tyrowicz, PhD
University of Warsaw | IAAEU | IZA
President & Co-founder of FAME|GRAPE
FAME|GRAPE || ING Think Forward Initiative || 2018 23