Means Testing Retirement Benefits: Fostering Equity or Discouraging Savings?

Sefton, James; Ven, Justin van de; Weale, Martin

doi:10.1111/j.1468-0297.2008.02133.x

“…Consequently, our model generates the well documented result from the empirical and theoretical literature that means-tested social insurance programs may be a part of the explanation why rich households save more than poor households and why poor households often do not hold any assets for retirement, see Dynan et al (2004) and Hubbard et al (1995). In addition, our results are broadly in line with the results from Sefton et al (2008), who documented that households react quite differently to changes in the asset test regime of retirement benefits depending on their position in the income distribution. Rising taper rates encourage poor households to save less while prompting richer agents to save a higher amount compared to a situation with universal benefits.…”

Section: Economic Effects Of Means-testingsupporting

confidence: 88%

Means-testing and economic efficiency in pension design

Fehr¹,

Uhde²

2014

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“…When eligibility for social benefits are means-tested against private wealth, it could result in so-called 'saving traps', i.e. households could be discouraged to save so as to remain below the asset threshold (Alcock & Pearson, 1999;Fehr & Uhde, 2013;Jäntti et al, 2008;Sefton et al, 2008). Hence, while the aim of new asset policies would be to encourage the poor to accumulate assets, proper means-testing punishes them for owning such assets.…”

Section: Conclusion and Policy Discussionmentioning

confidence: 99%

The Truly Vulnerable: Integrating Wealth into the Measurement of Poverty and Social Policy Effectiveness

Kuypers

¹

,

Marx

²

2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world's largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. There is a burgeoning literature on the significance and distribution of wealth in the rich world. It mainly focuses on the top. Wealth remains remarkably absent from the analysis of poverty and the redistributive effectiveness of welfare systems. This paper shows that real and financial assets can matter greatly when making assessments of who is poor and financially vulnerable. We introduce the concept of triple precariousness, afflicting households that not only have low income but also very low or non-existent assets to draw on for consumption needs, especially liquid assets. We analyse whether these households -whom we might call the truly vulnerable -have different characteristics from those that we identify as poor or needy on the basis of pure income based metrics. In an analysis for Belgium drawing on HFCS data, we show that households with a reference person that is young, unemployed, low educated, migrant, parent of dependent children, and above all a tenant are especially vulnerable in terms of their financial situation. By contrast, our assessment of the extent and depth of financial need among the elderly -a segment of society that is at a relatively high risk of income poverty -also changes. A substantial share of income poor elderly households own significant assets. We draw out some tentative consequences of these findings for anti-poverty and redistributive policies. Terms of use: Documents in JEL Classification:D31, G11

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“…Theoretical work by Hubbard et al (1995) and Sefton et al (2008) demonstrate that means-tested welfare programs discourage savings by households with low expected lifetime income. Empirical evidence for this prediction is provided by Neumark and Powers (1998) and Powers (1998) using U.S. data.…”

mentioning

confidence: 99%

How much do means-tested benefits reduce the demand for annuities?

Bütler

¹

,

Peijnenburg

²

,

Staubli³

2016

Journal of Pension Economics and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe analyze the effect of means-tested benefits on annuitization decisions. Availability of means-tested payments creates an incentive to cash out pension wealth for low and middle income earners, instead of taking the annuity. Agents trade off the advantages from annuitization, receiving longevity risk insurance, to the disadvantages, giving up "free" wealth in the form of means-tested supplemental income. Our simulated life-cycle model demonstrates that the availability of means-tested benefits substantially reduces the desire to annuitize, especially for low and intermediate levels of pension wealth. In our empirical analysis we show that the model's predicted fraction of retirees choosing the annuity is able to match the annuitization pattern of occupational pension wealth observed in Switzerland.Jel-Classification: D14, D91, G23, J26

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Means Testing Retirement Benefits: Fostering Equity or Discouraging Savings?

Cited by 63 publications

References 40 publications

Means-testing and economic efficiency in pension design

Means-testing and economic efficiency in pension design

The Truly Vulnerable: Integrating Wealth into the Measurement of Poverty and Social Policy Effectiveness

How much do means-tested benefits reduce the demand for annuities?

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