Due to the scarcity of the long-term market instruments, the valuation of private defined-benefit (DB) pension liabilities requires an extrapolation of the yield curve. In Canada, corporate yields are adopted to discount the private DB pension liabilities, but the issue on how to extrapolate the yield curve beyond the market liquid point has not been clearly addressed in the regulatory guidance. This paper introduces a macroeconomic extrapolation method called "the Canadian ultimate forward rate" to complete the yield curve. The new method effectively reduces the valuation volatility for it is robust against interpolation models and instantaneous market distortions.
{"title":"Discount Rate Regulation for Canadian Private Defined Benefit Pension Plans","authors":"Sally Shen","doi":"10.2139/ssrn.3083034","DOIUrl":"https://doi.org/10.2139/ssrn.3083034","url":null,"abstract":"Due to the scarcity of the long-term market instruments, the valuation of private defined-benefit (DB) pension liabilities requires an extrapolation of the yield curve. In Canada, corporate yields are adopted to discount the private DB pension liabilities, but the issue on how to extrapolate the yield curve beyond the market liquid point has not been clearly addressed in the regulatory guidance. This paper introduces a macroeconomic extrapolation method called \"the Canadian ultimate forward rate\" to complete the yield curve. The new method effectively reduces the valuation volatility for it is robust against interpolation models and instantaneous market distortions.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82235829","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Retirement income is not just about products. You need an underlying philosophy and sharpening the duties of trustee directors towards providing income in retirement would greatly assist funds in developing these. The super system needs to be able to measure success in the retirement phase and it’s not just a matter of using our accumulation measures. Measuring success by just being good investors is a dangerous game. There is a big wide world of asset managers out there and it is a highly fungible process. Serving customers, particularly retired customers, is the point of distinction for super funds.
{"title":"Retirement is Different","authors":"J. Cooper","doi":"10.2139/ssrn.3144670","DOIUrl":"https://doi.org/10.2139/ssrn.3144670","url":null,"abstract":"Retirement income is not just about products. You need an underlying philosophy and sharpening the duties of trustee directors towards providing income in retirement would greatly assist funds in developing these. The super system needs to be able to measure success in the retirement phase and it’s not just a matter of using our accumulation measures. Measuring success by just being good investors is a dangerous game. There is a big wide world of asset managers out there and it is a highly fungible process. Serving customers, particularly retired customers, is the point of distinction for super funds.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"152 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85170508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2017-09-30DOI: 10.5709/CE.1897-9254.244
Edyta Marcinkiewicz
The study aims at empirical verification of the quality of pension system clustering based on two dimensions: the extent of involvement of the state in the pension system and the level of voluntariness. To answer the question of whether these two dimensions actually determine the division into homogeneous groups that constitute pension regimes, Kendall’s W concordance coefficient is employed. It is typically used in Delphi studies as an indicator of expert consensus, but it has been shown that the concept of concordance can also be applied to statistical multivariate analysis to measure intra-group similarity. This empirical research comprises 30 OECD countries grouped into three pension regimes. It employs the classical chi-square test as well as the permutation test of the coefficient of concordance previously applied to empirical problems in biology. Additionally, this study proposes a new permutation procedure that allows for verifying the quality of clustering from a different perspective.
{"title":"Pension Systems Similarity Assessment: An Application of Kendall's W to Statistical Multivariate Analysis","authors":"Edyta Marcinkiewicz","doi":"10.5709/CE.1897-9254.244","DOIUrl":"https://doi.org/10.5709/CE.1897-9254.244","url":null,"abstract":"The study aims at empirical verification of the quality of pension system clustering based on two dimensions: the extent of involvement of the state in the pension system and the level of voluntariness. To answer the question of whether these two dimensions actually determine the division into homogeneous groups that constitute pension regimes, Kendall’s W concordance coefficient is employed. It is typically used in Delphi studies as an indicator of expert consensus, but it has been shown that the concept of concordance can also be applied to statistical multivariate analysis to measure intra-group similarity. This empirical research comprises 30 OECD countries grouped into three pension regimes. It employs the classical chi-square test as well as the permutation test of the coefficient of concordance previously applied to empirical problems in biology. Additionally, this study proposes a new permutation procedure that allows for verifying the quality of clustering from a different perspective.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"39 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87151500","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xiaodong Fan, Ananth Seshadri, Christopher R. Taber
We develop and estimate a model in which individuals make decisions on consumption, human capital investment, labor supply, and retirement. Unlike all previous work, our model allows both an endogenous wage process (which is typically assumed exogenous in the human capital and earnings dynamics literature). In addition, we introduce health shocks. We estimate the model and match the life-cycle profiles of wages, hours and retirement from SIPP data. We analyze the impact of health shocks on retirement, as well as the effect of changes in payroll taxes and increases in the Normal Retirement Age on labor force participation of older Americans.
{"title":"Understanding Earnings, Labor Supply, and Retirement Decisions","authors":"Xiaodong Fan, Ananth Seshadri, Christopher R. Taber","doi":"10.2139/ssrn.3107764","DOIUrl":"https://doi.org/10.2139/ssrn.3107764","url":null,"abstract":"We develop and estimate a model in which individuals make decisions on consumption, human capital investment, labor supply, and retirement. Unlike all previous work, our model allows both an endogenous wage process (which is typically assumed exogenous in the human capital and earnings dynamics literature). In addition, we introduce health shocks. We estimate the model and match the life-cycle profiles of wages, hours and retirement from SIPP data. We analyze the impact of health shocks on retirement, as well as the effect of changes in payroll taxes and increases in the Normal Retirement Age on labor force participation of older Americans.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88403021","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Same-sex marriage became legal nationwide in the United States on June 26, 2015. Federal legalization of same sex marriage expands the pool of individuals potentially eligible for spousal benefits from Social Security to the estimated 4% of the population that is lesbian, gay, or bisexual. This chapter is a foundational step to better understand the potential impact of the expansion of marriage rights to same-sex couples on Social Security. We primarily use data from the 2011-2015 American Community Survey to describe the economic circumstances of heterosexual and same-sex households. We estimate the anticipated social security benefit amounts for these individuals, as well as eligibility to claim spousal benefits. We estimate the size of the gay and lesbian populations by age and sex from 2017-2040 using standard demographic methods. Finally, we supplement the analyses with new data from the RAND American Life Panel.
{"title":"Exploring the Social Security Benefit Implications of Same-Sex Marriage","authors":"M. Pollard, Italo Lopez","doi":"10.2139/ssrn.3162220","DOIUrl":"https://doi.org/10.2139/ssrn.3162220","url":null,"abstract":"Same-sex marriage became legal nationwide in the United States on June 26, 2015. Federal legalization of same sex marriage expands the pool of individuals potentially eligible for spousal benefits from Social Security to the estimated 4% of the population that is lesbian, gay, or bisexual. This chapter is a foundational step to better understand the potential impact of the expansion of marriage rights to same-sex couples on Social Security. We primarily use data from the 2011-2015 American Community Survey to describe the economic circumstances of heterosexual and same-sex households. We estimate the anticipated social security benefit amounts for these individuals, as well as eligibility to claim spousal benefits. We estimate the size of the gay and lesbian populations by age and sex from 2017-2040 using standard demographic methods. Finally, we supplement the analyses with new data from the RAND American Life Panel.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"54 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90468437","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Poverty has been a common feature in all human societies since the dawn of civilization. Purchasing power of an individual decides her standard of living. In many cases, it even decides whether a person can live or not (eg: in starvation or malnourishment, victims have no purchasing power to buy calories). As such, the Right to Life philosophy of many National Constitutions comes to naught if the state cannot ensure adequate purchasing power for its people. Thus, an individual should have Right to Money in order to live with respect and dignity. In this paper, we will explore the concept of the Right to Money and how it is linked to the Right to Life. We will see how the Right to Money concept can ensure a continued economic expansion even in a scenario when automation has reached a critical point (i.e Technological Singularity). Right to Money can also ensure continued human dominance over Machine Intelligence as and when they arise. Interestingly the Right to Money leads to another advanced concept – The Right to Machines which will make certain that there is continued synergy between human and artificial intelligence in future and that the Human race stays relevant. The paper concludes as to how human society can be best prepared economically (or otherwise) for a Post-Technological Singularity scenario.
{"title":"The Right to Money as the Fundamental Right of Individuals in the Coming Digital Economy","authors":"Kartik Hegadekatti","doi":"10.2139/ssrn.2957172","DOIUrl":"https://doi.org/10.2139/ssrn.2957172","url":null,"abstract":"Poverty has been a common feature in all human societies since the dawn of civilization. Purchasing power of an individual decides her standard of living. In many cases, it even decides whether a person can live or not (eg: in starvation or malnourishment, victims have no purchasing power to buy calories). As such, the Right to Life philosophy of many National Constitutions comes to naught if the state cannot ensure adequate purchasing power for its people. Thus, an individual should have Right to Money in order to live with respect and dignity. In this paper, we will explore the concept of the Right to Money and how it is linked to the Right to Life. We will see how the Right to Money concept can ensure a continued economic expansion even in a scenario when automation has reached a critical point (i.e Technological Singularity). Right to Money can also ensure continued human dominance over Machine Intelligence as and when they arise. Interestingly the Right to Money leads to another advanced concept – The Right to Machines which will make certain that there is continued synergy between human and artificial intelligence in future and that the Human race stays relevant. The paper concludes as to how human society can be best prepared economically (or otherwise) for a Post-Technological Singularity scenario.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73471658","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A single-period tontine is an arrangement in which a group of members contribute to an investment pool, and after a fixed period of time, the pool is distributed to those members who are still alive. The distribution is made in unequal amounts based on member death probabilities and contribution amounts. In a companion article we apply the single-period tontine to propose products that we feel have commercial potential. Here, we focus on the analytics. The analysis applies not just to single-period tontines, but also to other arrangements that can be analyzed as a sequence of single-period tontines, such as pooled annuity funds.The core of the paper is the development of formulas for the mean and variance of the random amount that a surviving member receives in a single-period tontine. We use the formulas to resolve an open question about bias in pooled annuity funds and to show practical conditions under which it can be made negligible. We show how the provider can use the formulas to manage the subscription process, determining who is allowed to participate and how much they are allowed to contribute, so that the statistics of the tontine are favorably controlled. We use the formulas to compare mixing different cohorts within a single tontine versus creating a separate tontine for each cohort, finding that mixing cohorts is better because it reduces both idiosyncratic risk and systematic risk.
{"title":"The Analytics of a Single-Period Tontine","authors":"Michael J. Sabin, J. Forman","doi":"10.2139/ssrn.2874160","DOIUrl":"https://doi.org/10.2139/ssrn.2874160","url":null,"abstract":"A single-period tontine is an arrangement in which a group of members contribute to an investment pool, and after a fixed period of time, the pool is distributed to those members who are still alive. The distribution is made in unequal amounts based on member death probabilities and contribution amounts. In a companion article we apply the single-period tontine to propose products that we feel have commercial potential. Here, we focus on the analytics. The analysis applies not just to single-period tontines, but also to other arrangements that can be analyzed as a sequence of single-period tontines, such as pooled annuity funds.The core of the paper is the development of formulas for the mean and variance of the random amount that a surviving member receives in a single-period tontine. We use the formulas to resolve an open question about bias in pooled annuity funds and to show practical conditions under which it can be made negligible. We show how the provider can use the formulas to manage the subscription process, determining who is allowed to participate and how much they are allowed to contribute, so that the statistics of the tontine are favorably controlled. We use the formulas to compare mixing different cohorts within a single tontine versus creating a separate tontine for each cohort, finding that mixing cohorts is better because it reduces both idiosyncratic risk and systematic risk.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-11-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83045226","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This project report presents findings from the qualitative component of a study to examine American’s understanding of Social Security terminology regarding retirement, and to test responses to alternate names for those terms. Phase 1 of this study was a short survey of 1,260 respondents of the Understanding America Study (UAS) panel, which assessed whether the terms “Early Eligibility Age” (EEA), “Full Retirement Age” (FRA) and “Delayed Retirement Credits” (DRC) were well understood by respondents. The study’s second phase, which is the focus of this report and described in more detail below, consists of qualitative interviews with a small number of respondents selected from the UAS panel. The third and final phase of the study will be an experiment run through the UAS to test participants’ responses to and understanding of alternate names for Social Security retirement-related terminology.
{"title":"The Nomenclature of Social Security Retirement Benefits – Qualitative Exploration of Alternate Terminology","authors":"A. Filus, L. Rabinovich","doi":"10.2139/ssrn.2822546","DOIUrl":"https://doi.org/10.2139/ssrn.2822546","url":null,"abstract":"This project report presents findings from the qualitative component of a study to examine American’s understanding of Social Security terminology regarding retirement, and to test responses to alternate names for those terms. Phase 1 of this study was a short survey of 1,260 respondents of the Understanding America Study (UAS) panel, which assessed whether the terms “Early Eligibility Age” (EEA), “Full Retirement Age” (FRA) and “Delayed Retirement Credits” (DRC) were well understood by respondents. The study’s second phase, which is the focus of this report and described in more detail below, consists of qualitative interviews with a small number of respondents selected from the UAS panel. The third and final phase of the study will be an experiment run through the UAS to test participants’ responses to and understanding of alternate names for Social Security retirement-related terminology.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"85 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75950605","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Although researchers have shown that purchasing longevity insurance at retirement guarantees pensioners of a high annual income for the rest of their lives, most retirees (who have a choice) choose to take the lump sum and self-manage the portfolio. This is a long-standing puzzle called the "annuity puzzle". This question arises in importance due to the UK government's recent changes in pension policy. This paper implements a behavioural model, the hyperbolic discount model, to analyse annuity purchase decisions. We give an explanation for the low demand of immediate annuity at retirement, and uncover the high desirability of long-term deferred annuities for both retirees and working-age pensioners. Based on our modeling result, a 65-year-old individual would like to pay 24% higher than the fair price for a 30-year deferred annuity. Moreover, we suggest that if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions 10 years before retirement, the take up rate of annuities would become higher.
{"title":"Why the Deferred Annuity Makes Sense","authors":"A. Chen, S. Haberman, Stephen H. Thomas","doi":"10.2139/ssrn.2797795","DOIUrl":"https://doi.org/10.2139/ssrn.2797795","url":null,"abstract":"Although researchers have shown that purchasing longevity insurance at retirement guarantees pensioners of a high annual income for the rest of their lives, most retirees (who have a choice) choose to take the lump sum and self-manage the portfolio. This is a long-standing puzzle called the \"annuity puzzle\". This question arises in importance due to the UK government's recent changes in pension policy. This paper implements a behavioural model, the hyperbolic discount model, to analyse annuity purchase decisions. We give an explanation for the low demand of immediate annuity at retirement, and uncover the high desirability of long-term deferred annuities for both retirees and working-age pensioners. Based on our modeling result, a 65-year-old individual would like to pay 24% higher than the fair price for a 30-year deferred annuity. Moreover, we suggest that if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions 10 years before retirement, the take up rate of annuities would become higher.","PeriodicalId":39542,"journal":{"name":"Social Security Bulletin","volume":"58 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75880718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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