The adequacy of wealth among those approaching retirement

Crawford, Rowena; O’Dea, Cormac

doi:10.1920/re.ifs.2012.0072

Cited by 20 publications

(31 citation statements)

References 12 publications

(16 reference statements)

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“…If we only take into account wealth in the first and second pension pillars, replacement rates become substantially lower in all age categories. This substantial contribution of non-pension wealth, including housing, to retirement income is also found by Crawford and O'Dea (2012), who performed a comparable analysis for the UK. Table 5 shows that when account is taken only of public and occupational pensions, a considerable share of the households (49%) has a gross replacement rate below 70%.…”

Section: Gross Replacement Ratessupporting

confidence: 60%

Measuring retirement savings adequacy: developing a multi-pillar approach in the Netherlands

Knoef¹,

Been²,

Alessie

et al. 2014

Journal of Pension Economics and Finance

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The Dutch pension system is highly ranked on adequacy. These rankings, however, are based on fictitious replacement rates for median income earners. This paper investigates whether the Dutch pension adequacy is still high when we take into account the resources that people really accumulate, using a large administrative data set. A comprehensive approach is followed: not only public and private pension rights, but also private savings and housing wealth are taken into account. Summed over all ageand socioeconomic groups we find a median gross replacement rate of 83% and a net replacement rate of 101%. At retirement age, 31% of all households face a gross replacement rate that is lower than 70% of current income. Public and occupational pensions each account for more than 35% of total pension annuities. Private non-housing assets account for 14% and imputed rental income from net housing wealth accounts for about 10%. Some vulnerable groups, such as the self-employed, have below average replacement rates. Results are fairly similar to results found in the UK, indicating that we should be careful in evaluating the adequacy of pensions systems on the basis of fictitious replacement rates. Adequate retirement savingsIn many Western countries, pension systems are affected by demographic aging (OECD, 2013) and reforms are needed to keep the system sustainable and adequate. A good pension system protects people against poverty and smooths people's income over their life-cycle. To achieve these goals countries organize their pension system in very different ways. Considerable effort has been made to compare pension systems across countries and to identify strengths and weaknesses of different systems (OECD, * This study is part of an international comparative study regarding Retirement Savings Adequacy organized by the OECD. We thank Netspar and Instituut Gak for their financial support. We would like to thank seminar participants at the OECD Paris, WRR Den Haag, FISS Sigtuna, CPB Den Haag and IIPF Taormina. More specifically, we are indebted to anonymous referees,

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Section: Gross Replacement Ratessupporting

confidence: 60%

Measuring retirement savings adequacy: developing a multi-pillar approach in the Netherlands

Knoef¹,

Been²,

Alessie

et al. 2014

Journal of Pension Economics and Finance

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“…In order to place our results in the context of the existing UK literature on the adequacy of resources, we also consider the 'adequacy' of resources for the same sample of households using the common benchmarking approach. This builds on previous work (Banks et al (2005) and Crawford and O'Dea (2012)), 1 although newly-available data mean we can make significant methodological improvements.…”

Section: Introductionmentioning

confidence: 55%

“…To date, the UK literature that has addressed this second point has taken the approach of comparing individuals' retirement income with some standard benchmark income defined relative to current or previous levels of income or earnings (see, for example, Banks et al (2005), Crawford and O'Dea (2012), Department for Work and Pensions (2012) and Pensions Policy Institute (2012, 2013)). Retirement resources are then deemed to be 'adequate' if individuals are not likely to experience more than a certain decline in their income in retirement.…”

Section: Introductionmentioning

confidence: 99%

Retirement sorted? The adequacy and optimality of wealth among the near-retired

Crawford¹,

O’Dea²

2014

Self Cite

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Much of the focus of the UK pensions policy debate over the past decade has been on the adequacy (or otherwise) of private retirement saving. In this paper, we present the first assessment of the optimality of the retirement resources of English couple households born in the 1940s. Here, 'optimal' wealth holdings are those that allow households to enjoy the same level of living standards in both working life and retirement. We use a life-cycle model of consumption and saving to calculate this level of wealth, and compare that with how much wealth households are observed to hold. We find that the majority of households hold more wealth than our model suggests is optimal and that this would still be true even if housing wealth were excluded from observed wealth holdings. A comparison of this approach with the replacement rate approach commonly used to assess the adequacy of households' retirement resources suggests that using a simple replacement rate benchmark could give a misleading picture of households' preparedness for retirement as it cannot capture the vast heterogeneity in households' circumstances.Note: This paper contains a non-technical summary of much of the material contained in Crawford and O'Dea (2014).

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“…The assessment of economic preparation for retirement has relied on measures of income and wealth (Boskin & Shoven, 1987;Haveman et al, 2006Haveman et al, , 2007Crawford & O'Dea, 2012;Knoef et al, 2013;De Bresser & Knoef, 2014), and in some cases on measures of consumption (Engen et al, 1999;Scholz et al, 2006;Hurd & Rohwedder, 2008bBinswanger & Schunk, 2012). The canonical Life-Cycle Hypothesis (LCH) predicts that individuals allocate their resources to smooth the marginal utility of consumption over their lifetime.…”

Section: Literaturementioning

confidence: 99%