Henrik Yde Andersen, Copenhagen Business School and Danmarks Nationalbank


"Do Tax Incentives for Saving in Pension Accounts Cause Debt Accumulation? Evidence from Danish Register Data"

Measuring the effect of a policy that reduced tax credits on pension savings, this paper shows that individuals tend to make extraordinary repayments on their debt when they reduce private pension contributions. Individuals with large debt balances or high loan-to-value ratios tend to drive the effects, suggesting a precautionary savings motive. Our study stands out by using comprehensive and detailed longitudinal information about all mortgage loans in Denmark as well as complete information about household wealth. We conclude that tax incentives for saving in retirement accounts could affect gross debt accumulation and household financial balances.

Nicholas Barr, London School of Economics


"Designing pensions: What’s right, what’s wrong, what works"

The first part of the talk sets out lessons from economic theory and what they imply for good pension design. Many pension products are long-term and complex, yet the evidence shows that financial literacy is shockingly limited. The rapidly-developing literature on behavioural economics helps to explain why many people make bad choices about retirement saving. Pension design needs to take account of these problems. Several lessons result: reducing choice can be beneficial; financial education is important but not a complete solution; the usefulness of choice and competition in pensions should not be overstated; exposure to risk should decline with age; administrative costs matter; and there are sound principles of pension design but no single best pension system for all countries. The second part of the talk draws on these lessons to set out four useful directions for policy. (1) Social pensions, i.e. a basic pension financed from taxation and awarded on the basis of age and residence, but without requiring a contributions record. (2) Later and more flexible retirement. (3) The design of simple, cheaply-administered savings and annuities. (4) Notional Defined Contribution pensions.

Laurence J. Kotlikoff, Boston University


"Pensions - Their Importance for Understanding True Inequality, Fiscal Progressivity, and Marginal Taxation"

Pensions, both those provided by employers and those provided by the state, represent important forms of household wealth. Yet they are seldom incorporated in studies of inequality. Indeed, much of the concern about inequality stems from the concentration of net wealth.  In the United States, the richest 1 percent of households (ranked by their economic resources), account for almost 20 percent of the cohort's net wealth. This is obviously highly unequal. But would including pension and other forms of wealth, including human wealth change the picture? And doesn't one also need to account for negative wealth, specifically the present value of projected future taxes. The answer, of course, is yes. When one adds all the positive and negative wealth components together one arrives at lifetime spending power, which should be the real focus of inequality discussions. In the U.S., inequality in spending power is far smaller than is inequality in wealth. For example, the richest 1 percent of 40 year old households account for only 9 percent of spending power, i.e., top-1 percent inequality measured correctly is, for this cohort, less than half of what one would think from considering only net wealth. 

Claus Munk, Copenhagen Business School


"The Role of Housing in Life-cycle Portfolio and Consumption Decisions"

Residential real estate is an important asset and consumption good for many households. But how attractive is residential real estate as an investment? How are individuals’ housing investment and housing consumption decisions related to their financial investments and consumption of other goods? These questions are addressed both in a simple mean-variance framework extended to a life-cycle setting and in a more elaborate multi-period model of life-cycle decisions.

Theo Nijman, Tilburg University and Netspar


"Alternative approaches to decumulation of DC capital"
In many countries there is a lot of discussion on adequate contribution to retirement products and adequate investment strategies during the accumulation period. Much less attention has been paid to adequate decumulation, which is the goal of this project. The paper proposes a new type of pension (Personal Pension with Risksharing, PPR) that aims to provide attractive stable income streams. PPR allows risk management, dissaving, risk sharing and insurance functions of pensions to be customized to the specific features of heterogeneous individuals. This new type of pension products is very prominent in the Dutch discussion on pension reforms. In the decumulation phase it enables investment risks to be combined with longevity insurance without giving rise to high year-on-year volatility in consumptions streams or complex valuation methods. The presentation summarizes the academic literature and Dutch policy discussions on decumulation of pension capital and argues that these are equally relevant for decumulation of DC capital in other countries.

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