Advertisement

Ageing International

, Volume 43, Issue 4, pp 438–463 | Cite as

Pension Plans and Retirement Insecurity

  • Wei-Ting Yen
Article

Abstract

Why do we observe higher and higher retirement insecurity over the years? This paper argues that an individual’s retirement insecurity hinges on the interplay between her registered pension scheme and the level of market volatility. A pension scheme reflects the extent to which pension investment risk is individualized, providing the seed for retirement insecurity. The fear for retirement was triggered as capital markets became more volatile over the past decade. Market volatility creates an immediate information shortcut for individuals when forming expectations about post-retirement income that will only be realized in the long run. Due to the “available information bias,” citizens have developed overall downward expectations of retirement income under growing market volatility, forming pessimistic perceptions about retirement. This pessimism is more striking among those with a Defined Contribution pension scheme than those with a Defined Benefit plan because of the risk individualization feature. The argument is tested with data from the British Household Panel Survey (BHPS). The findings suggest that individuals’ perceptions of insecurity in post-working life are driven by the type of pension plan in which they are enrolled and the degree of market fluctuation facing them.

Keywords

Old-age security Market volatility Welfare state Public pension United Kingdom Economic insecurity Retirement insecurity; BHPS 

Notes

Compliance with Ethical Standards

Conflict of Interest

Wei-Ting Yen declares that she has no conflict of interest.

Informed Consent

Informed content was obtained from individual participants included in the study.

Ethical Treatment of Experimental Subjects (Animal and Human)

This article does not contain any studies with human participants or animals performed by the author.

References

  1. Ashcroft, J. (2009). Defined-Contribution (DC) arrangements in Anglo-Saxon countries, OECD Working Papers on Insurance and Private Pensions 35, OECD publishing.Google Scholar
  2. Baldwin, P. (1990). The politics of social solidarity: Class bases of the European welfare state 1875–1975. Oxford: Cambridge University Press.CrossRefGoogle Scholar
  3. Bender, K.A., & Jivan, N. (2005). What makes retirees happy? (Vol 28). Center for retirement research at Boston College.Google Scholar
  4. Berns, G.S., Laibson, D., & Loewenstein, G. (2007). Intertemporal choice –toward an integrative framework. Trends in Cognitive Sciences, 11(11), 482–488.CrossRefGoogle Scholar
  5. Bewley, R., Ingram, N., Livera, V., & Thompson, S. (2007). Who’s afraid of the big bad bear? Or, why investing in equities for retirement is not scary and why investing without equities is scary. In H. Bateman (Ed.), Retirement Provision in Scary Market (pp. 14–44).Google Scholar
  6. Brooks, S.M. (2009). Social protection and the market in Latin America: The transformation of social security institutions. New York: Cambridge University Press.Google Scholar
  7. Brooks, C., & Manza, J. (2007). Why welfare states persist: The importance of public opinion in democracies. Chicago: University of Chicago Press.CrossRefGoogle Scholar
  8. Dominitz, J., & Manski, C. (1996). Perceptions of economic insecurity: Evidence from the Survey of Economic Expectation. Business Week, 1105, 1105–1196.Google Scholar
  9. Dryzek, J., & Goodin, R. (1986). Risk-sharing and social justice: The motivational foundations of the post-war welfare state. British Journal of Political Science1, 16(01), 1–34.CrossRefGoogle Scholar
  10. Elder, H.W., & Rudolph, P.M. (1999). Does retirement planning affect the level of retirement satisfaction? Financial Services Review, 8, 117–127.CrossRefGoogle Scholar
  11. Esping-Anderson, G. (1990). The three worlds of welfare capitalism. Princeton: Princeton University Press.Google Scholar
  12. Feldstein, M. (1998). Introduction. In M. Feldstein (Ed.), Privatizing Social Security. Chicago: University of Chicago Press.CrossRefGoogle Scholar
  13. Hacker, J., Rehm, P., & Schlesinger, M. (2010). Standing on shaky ground: American’s Experiences with Economic Insecurity. http://www.economicsecurityindex.org/upload/media/ESI%20report%20final_12%2013.pdf
  14. Hacker, J., Huber, J., Nichols, A., Rehm, P., & Craig, S. (2011). Economic insecurity and the great recession. (November). http://economicsecurityindex.org/assets/ESI%20Full%20Report%202011.pdf
  15. International Labor Organization (2004) Economic Security for a Better World. http://www.ilo.org/public/english/protection/ses/info/publ/economic_security.htm
  16. Jacobs, A. (2011). Governing for the long term. New York: Cambridge University Press.CrossRefGoogle Scholar
  17. Jacobs, A. M., & Matthews, J. S. (2012). Why do citizens discount the future? Public opinion and the timing of policy consequences. British Journal of Political Science, 42(04), 903–935.CrossRefGoogle Scholar
  18. Jones, B. (1999). Bounded rationality. Annual Review of Political Science, 2, 297–321.CrossRefGoogle Scholar
  19. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the Econometric Society, 47(March), 263–291.CrossRefGoogle Scholar
  20. Kahneman, D., & Tversky, A. (1982). On the study of statistical intuitions. In D. Kahneman, P. Slovic, & A. Tversky (Eds.), Judgment under Uncertainty (pp. 493–508). New York: Cambridge University Press.CrossRefGoogle Scholar
  21. Pew Research Center (2014). Attitudes about aging: a global perspective. Retrieved from http://www.pewglobal.org/files/2014/01/Pew-Research-Center-Global-Aging-Report-FINAL-January-30-20141.pdf. Accessed 18 Nov 2018.
  22. Macdonald, B.J., Osberg, L., Moore, K.D., Macdonald, B.-J., Osberg, L., & Moore, K.D. (2016). How accurately does 70% final employment earnings replacement measure retirement income (in)adequacy? Introducing the Living Standards Replacement Rate (LSRR). Astin Bulletin, 4620(3), 627–676.CrossRefGoogle Scholar
  23. Marx, P. (2014). Labour market risks and political preferences: The case of temporary employment. European Journal of Political Research, 53(1), 136–159.CrossRefGoogle Scholar
  24. Moene, K., & Wallerstein, M. (2001). Inequality, social insurance, and redistribution. American Political Science Review, 95(4), 859–874.Google Scholar
  25. Morin, B.R., and Fry, R. (2012). Adults in their late 30s most concerned: More Americans worry about financing retirement. http://www.pewresearch.org/daily-number/adults-in-mid-to-late-30s-worry-most-about-retirement-finances/
  26. Munnell, A.H., Webb, A., & Delorme, L. (2006). A new national retirement risk index. Center for Retirement Research, 48, 1–9.Google Scholar
  27. Organization for Economic Co-operation and Development (OECD) (2012). Pension markets in focus. http://www.oecd.org/newsroom/pensionfundassetsatrecordhighbutinvestmentreturnsnegativein2011saysoecd.htm
  28. Organization for Economic Co-operation and Development (OECD) (2008). Private pensions: OECD classification and glossary. http://www.oecd.org/finance/private-pensions/38356329.pdf
  29. Organization for Economic Co-operation and Development (OECD) (2013). Pension markets in focus. https://www.oecd.org/finance/PensionMarketsInFocus2013.pdf
  30. Organization for Economic Co-operation and Development (OECD) (2016). Pension markets in focus 2016. https://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2016.pdf
  31. Osberg, L., & Sharpe, A. (2009). Measuring economic security in insecure times: New perspectives, new events, and the index of economic well-being. In Canadian Economics Association Annual Conference, Toronto, Canada.Google Scholar
  32. Rehm, P. (2009). Risks and redistribution: An individual-level analysis. Comparative Political Studies, 2005, 855–881.CrossRefGoogle Scholar
  33. Rudolph, H., Hinz, R., Antolin, P., & Yermo, J. (2010). Evaluating the financial performance of pension funds. In R. Heinz, R. Hinz, P. Antolin, & J. Yermo (Eds.), Evaluating the Financial Performance of Pension Funds (pp. 1–24). Washington DC: World Bank Publications.Google Scholar
  34. Samwick, A.A., & Skinner, J. (2003). How will 401(k) pension plans affect retirement income? American Economic Review, 94(1), 329–343.CrossRefGoogle Scholar
  35. Scholz, J.K., & Seshadri, A. (2009). What replacement rates should households use? (No. WP 2009-214). Retrieved from https://deepblue.lib.umich.edu/bitstream/handle/2027.42/65069/wp214.pdf?sequence=1&isAllowed=y. Accessed 23 Oct 2017.
  36. Shiller, R. J. (1999). Human behavior and the efficiency of the financial system. Handbook of macroeconomics, 1, 1305–1340.Google Scholar
  37. Vanderhei, J. (2006). “Measuring retirement income adequacy: Calculating realistic income replacement rates.” EBRI Issue Brief no. 297. September 2006. Retrieved from http://www.adobe.com/products/acrobat/readstep2.html. Accessed 25 Oct 2017.
  38. Weyland, K. (2007). Bounded rationality and policy diffusion: Social sector reform in Latin America. New Jersey: Princeton University Press.Google Scholar
  39. Whelan, C.T., & Maître, B. (2008a). Social class variation in risk: a comparative analysis of the dynamics of economic vulnerability. The British Journal of Sociology, 59(4), 637–659.CrossRefGoogle Scholar
  40. Whelan, C.T., & Maître, B. (2008b). “New”and “old” social risks: Life cycle and social class perspectives on social exclusion in Ireland. Economic and Social Review, 39(2), 131–156.Google Scholar
  41. Wilson Sokhey, S. (2017). The political economy of pension policy reversal in post-communist countries. Cambridge: Cambridge University Press.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Denison UniversityGranvilleUnited States

Personalised recommendations