Pension Economics

While not attempting to train readers as professional economists,
this book aims to provide a secure grounding in the theory and
practice of economics insofar as it deals with pension matters.
From reading this book, the user will understand:

• The key types of pension scheme

• The role of pensions in maximizing individual lifetime
  welfare

• The role of pensions in individual savings and retirement
  decisions

• The role and consequences of the pension plan from the company's
  viewpoint

• The role of pensions in promoting aggregate savings

• The role of pensions and retirement in overlapping generations
  models

• The economics of ageing and intergenerational accounting

• The social welfare implications of pensions

• The lessons of behavioural economics for pensions

Autorentext

Dr DAVID BLAKE is Professor of Pension Economics and Director of the Pensions Institute at Cass Business School, London, and Chairman of Square Mile Consultants, a training and research consultancy. He was formerly Director of the Securities Industry Programme at City University Business School, Research Fellow at both the London Business School and the London School of Economics and Professor of Financial Economics at Birkbeck College, University of London. He is consultant to many organisations, including Merrill Lynch, Deutsche Bank, Union Bank of Switzerland, JPMorgan, McKinsey & Co., the Financial Services Authority, the Office of Fair Trading, the Office for National Statistics, the Government Actuary's Department, the National Audit Office, the Department for Work and Pensions, HM Treasury, the Bank of England, the Prime Minister's Policy Directorate and the World Bank. In June 1996, he established the Pensions Institute, which undertakes high-quality research on all pension-related issues and publishes details of its research activities on the internet (http://www.pensions-institute.org).

Zusammenfassung
While not attempting to train readers as professional economists, this book aims to provide a secure grounding in the theory and practice of economics insofar as it deals with pension matters. From reading this book, the user will understand:

• The key types of pension scheme
• The role of pensions in maximizing individual lifetime welfare
• The role of pensions in individual savings and retirement decisions
• The role and consequences of the pension plan from the company's viewpoint
• The role of pensions in promoting aggregate savings
• The role of pensions and retirement in overlapping generations models
• The economics of ageing and intergenerational accounting
• The social welfare implications of pensions
• The lessons of behavioural economics for pensions

Inhalt

Preface xi

1 Introduction

1.1 What is pension economics? 1

1.2 Types of pension scheme 3

1.3 Conclusions 10

Questions 10

References 11

2 Individual Pension Decision Making 13

2.1 The lifecycle model 13

2.2 Pensions and savings 19

2.2.1 Unfunded state pension 19

2.2.2 Private funded pension 20

2.3 Pensions and retirement decisions 23

2.3.1 No pension 23

2.3.2 Private funded pension 24

2.3.3 Unfunded state pension 25

2.3.4 Unfunded state pension with private funded pension 26

2.4 Empirical studies testing the validity of the lifecycle model 28

2.5 The Feldstein lifecycle model with induced retirement 30

2.5.1 The consumption decision 32

2.5.2 Retirement behaviour 37

2.5.3 Discussion 38

2.6 Conclusions 39

Questions 40

References 41

3 Corporate Pension Decision Making 47

3.1 The provision of pensions by corporations 47

3.2 The role of pensions in employment contracts 48

3.2.1 Pensions as altruism 48

3.2.2 Pensions as deferred pay 49

3.2.3 Pensions as contingent claims 60

3.3 The nature of corporate pension liabilities 61

3.4 Quitting and mandatory retirement 64

3.4.1 Quitting 64

3.4.2 Mandatory retirement 66

3.5 Tax and pension fund policy 68

3.6 Agency costs in pension schemes and pension funds 71

3.6.1 Insider-trustees 72

3.6.2 Underfunding the pension scheme 75

3.6.3 Performance-related fund management fees 80

3.6.4 Shareholder activism and corporate governance 81

3.6.5 Moral hazard, adverse selection and disability pensions 82

3.7 Conclusions 83

Questions 84

References 85

4 Pensions in the DiamondSamuelson Overlapping Generations Model with Certain Lifetimes 89

4.1 The two-period DiamondSamuelson OLG model 90

4.1.1 Individuals 91

4.1.2 Firms 98

4.1.3 Market equilibrium 100

4.1.4 Dynamics, stability and the steady state 101

4.1.5 Optimality and efficiency 103

4.2 Pensions in the DiamondSamuelson OLG model with exogenous labour supply and retirement 105

4.2.1 State pension scheme 106

4.2.2 The equivalence of PAYG and government debt 117

4.2.3 Transitional and welfare effects 120

4.2.4 From PAYG to a funded pension scheme 121

4.3 PAYG pensions in the DiamondSamuelson OLG model with endogenous labour supply and retirement 122

4.3.1 Individuals 122

4.3.2 Market equilibrium 125

4.3.3 The steady state 126

4.3.4 Welfare effects 129

4.3.5 From PAYG to a funded pension scheme 132

4.4 Conclusions 132

Questions 133

References 135

5 Pensions in the BlanchardYaari Overlapping Generations Model with Uncertain Lifetimes 137

5.1 The BlanchardYaari OLG model with uncertain lifetimes 137

5.1.1 Yaari's contribution 137

5.1.2 Blanchard's contribution 142

5.1.3 Individuals 142

5.1.4 Aggregate consumption 144

5.1.5 Firms 147

5.1.6 Government and market equilibrium 148

5.1.7 The phase diagram 149

5.2 PAYG pensions in the BlanchardYaari OLG model with endogenous labour supply and mandatory retirement 152

5.3 Conclusions 154

Questions 155

References 156

6 The Economics of Ageing and Generational Accounting 157

6.1 The macroeconomic effects of ageing: Declining population growth and the increasing dependency ratio 157

6.2 Pensions in the DiamondSamuelson OLG model with a variable population growth rate 161

6.3 Generational accounting 164

6.4 Conclusions 167

Questions 168

References 168 **7 Risk Sharing and Redis...