Funding in Public Sector Pension Plans: International Evidence

Ponds, Eduard; Severinson, Clara; Yermo, Juan

doi:10.2139/ssrn.1849584

Cited by 10 publications

(13 citation statements)

References 22 publications

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“…However, they find no evidence that prices react to disclosures required by the Securities and Exchange Commission. Further, although transparency about the implicit pension debt seems to rather low in spite of the financial burden that pension arrangements impose on the government (Ponds et al (2011)), Bohn and Inman (1996) find no evidence that tighter budgetary restrictions encourage states to push deficits into implicit debt so as to conceal a state's true financial situation.…”

Section: Pension Liabilities Ratio Implicit Debt Ratio Explicit Debt mentioning

confidence: 99%

U.S. municipal yields and unfunded state pension liabilities

Lekniute

Beetsma

Ponds

2019

Journal of Empirical Finance

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We present empirical evidence that municipal bond yields are increasing in the pension debt towards U.S. state civil servants. However, positive yield effects of both pension and explicit debt are found only for the period since the start of the crisis, suggesting that the crisis triggered awareness of budgetary sustainability. The marginal yield effect of higher pension debt is smaller than that of higher explicit debt, but still economically meaningful. The effect of higher pension debt seems stronger when using market values of pension assets than actuarial values, suggesting that investors pay more attention to market values.

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Section: Pension Liabilities Ratio Implicit Debt Ratio Explicit Debt mentioning

confidence: 99%

U.S. municipal yields and unfunded state pension liabilities

Lekniute

Beetsma

Ponds

2019

Journal of Empirical Finance

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“…But even in countries where contributory pensions have their own budget, increasing life expectancy makes general budget supplements necessary. Moreover, the pension costs of government employeeswhich make up more than 15% of OECD countries' labour force and between 17% (in France and Germany) and 27% (Austria) of pension expenditure (Ponds et al 2011) have been steadily rising as an often implicit liability. As tax income failed to keep pace with rising social spending since the 1980s (possibly due to conservative tax revolt) (Streeck 2014), only large increases in public debt could impede a pension retrenchment.…”

Section: Permissive Conditions: 'Buying Time'mentioning

confidence: 99%

The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

Gunten

Kohl

2019

West European Politics

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The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative crosssectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension-homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by 'buying time' on credit markets. KEYWORDS Homeownership; welfare; pensions; trade-off; long run Housing has long been relatively neglected in the comparative welfare states literature and in political economy more generally. Nevertheless, the best-established hypothesis in this terrain is the notion of a long-run trade-off between homeownership and social policy generosity, especially in old-age pensions (Kemeny 1981). Castles (1998) termed this homeownership-pension relationship the 'really big trade-off'. While scholars took up this hypothesis only sporadically for two decades, recent literature has CONTACT Sebastian Kohl

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“…A uniform policy pension system (UPPS) consists of uniform contribution rates and uniform accrual rates, which are equal for all participants without taking into account the participant's age at the time of payment. This typically applies to DB pension schemes, such as the public sector pension plans in Australia, Canada, Germany, the Netherlands, Norway and Switzerland, the Universities Superannuation Scheme in the U.K. and the sub-national civil servants plans in the U.S. (Chen et al, 2017;OECD, 2001;Ponds et al, 2011;Westerhout et al, 2014). Under the UPPS, young people pay the same (undiscounted) as older people while getting the same pension entitlements, despite the fact that contributions of young people can render much longer, which implies higher expected cumulative investment returns.…”

Section: Introductionmentioning

confidence: 99%

Redistributive Consequences of Abolishing Uniform Contribution Policies in Pension Funds

Chen

Wijnbergen

2019

SSRN Journal

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In a pension system with uniform policies for contribution and accrual, each participant has the same contribution rate and accrual rate independent of the age at the time of payment. This is not actuarially fair because the investment horizon of young participants is longer than the investment horizon of the elderly. This paper shows the presumably unintended redistributive effects of a uniform contribution system and the consequences of switching from uniform policies to an actuarially fair system. We first analyze a stylized model with three overlapping generations to show the intuition behind these effects. Then, we quantify these effects in a more detailed model with multiple overlapping generations, realistic parameters and more detailed information on the income distribution, calibrated on the Dutch funded pension system. We first use this model to show that there is a substantial transfer of income from poor to wealthy participants under a pension scheme with uniform policies: about 10 billion euros are transferred from poor to wealthy participants under the current uniform contribution policies in the Netherlands. We then calculate the gross aggregate transition effect of abolishing the uniform policy pension for an actuarially fair system to be about 37 billion euros (or about 5% of the Dutch GDP). 1 For each cohort, the redistributive effects are less than 5% of their total pension.

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Funding in Public Sector Pension Plans: International Evidence

Cited by 10 publications

References 22 publications

U.S. municipal yields and unfunded state pension liabilities

U.S. municipal yields and unfunded state pension liabilities

The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

Redistributive Consequences of Abolishing Uniform Contribution Policies in Pension Funds

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