Social security wealth in Italy: twenty years of pension reforms Michele Belloni Agar Brugiavini...
-
Upload
elinor-park -
Category
Documents
-
view
218 -
download
0
description
Transcript of Social security wealth in Italy: twenty years of pension reforms Michele Belloni Agar Brugiavini...
Social security wealth in Italy: twenty years of pension reforms
Michele BelloniAgar Brugiavini
Elena Raluca BuiaGiacomo Pasini
“The Bank of Italy’s Analysis of Household Finances”Fifty Years of The Survey on Household Income and Wealth and the Financial Accounts, Bank of
Italy, Rome, 3-4 December 2015
Motivation
The Italian pension system has seen a season of reforms in the last twenty years, starting in 1992 (Amato reform), in 1995 (Dini Reform) and finally in 2011 (Monti-Fornero Reform)
The main driver has been financial sustainability of the system, but other important changes have taken place in the Italian society and Italian economy
Survival probability for 60+, men
Source; Brugiavini, Peracchi 2014
Survival probability 60+, women
Source; Brugiavini, Peracchi 2014
LFP rate of men, ages 55-59, 60-64, 65-69
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
LFP_5559_M MARSS_LFP5559_M LFP_6064_MMARSS_LFP_6064_M LFP_6569_M MARSS_LFP_6569_M
Source; Brugiavini, Pasini, Weber 2015
LFP rate of women - ages 55-59, 60-64, 65-69
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140%
10%
20%
30%
40%
50%
60%
70%
80%
90%
LFP_5559_W MARSS_LFP_5559_W LFP_6064_WMARSS_LFP_6064_W LFP_6569_W MARSS_LFP_6569_W
Source; Brugiavini, Pasini, Weber 2015
Employment by age, men
Employment by age, women
Employment and life expectancy, men
Note: In 1977 a life expectancy of 32 corresponds to approx. age 42 while a life expectancy of 19 corresponds to age 57 and they correspond to a mortality of 0.003 and 0.015 respectively
32 19
Employment and life expectancy, women
Note: In 1977 a life expectancy of 30 corresponds to approx. age 49 while a life expectancy of 16 corresponds to age 66 and they correspond to a mortality of 0.003 and 0.015 respectively
Social Security In Brief1969 to 1992• Earnings related
• Replacement rate = (2% * number of years of contribution) up to a max of 80%
• Legal retirement age 60 (men) 55 (women)
• Can retire any age if 35 years contributions completed, with no actuarial penalty
Social Security Reforms1992 • “Amato” Reform
Benefits less generousLegal (old age) retirement age gradually reaching 65 (men) 60 (women)
1995• “Dini” Reform
Notionally defined contribution pension benefitsWindow of retirement ages (57-65) with actuarial penalty To become fully operational after 2030 (Grandfathering)
Eligibility for old age pension – private sector employees
Defined benefit Defined contribution
year men Age
women Age seniority men
Age women
Age Contributions
1990 60 55 15 - - - 1991 60 55 15 - - - 1992 60 55 15 - - - 1993 60 55 16 - - - 1994 61 56 16 - - - 1995 61 56 17 - - - 1996 62 57 17 57-65 57-65 5 1997 63 58 18 57-65 57-65 5 1998 63 58 18 57-65 57-65 5 1999 64 59 19 57-65 57-65 5 2000 65 60 19 57-65 57-65 5 2001 65 60 20 57-65 57-65 5 2002 65 60 20 57-65 57-65 5 2003 65 60 20 57-65 57-65 5 2004 65 60 20 57-65 57-65 5 2005 65 60 20 57-65 57-65 5 2006 65 60 20 57-65 57-65 5 2007 65 60 20 57-65 57-65 5
2008-2011 same as above same as above
Year Private employee
Age + Contributive years Contributive years1974 - 35
.. .. ..1994 - 351995 - 351996 52+35 361997 52+35 361998 54+35 361999 55+35 372000 55+35 372001 56+35 372002 57+35 372003 57+35 372004 57+35 382005 57+35 382006 57+35 392007 57+35 392008 58+35 402009 58+35 402010 59+36 402011 60+36 40
Eligibility for early retirement pension
Monti-Fornero Reform (February 2012)
• Relate the retirement age to life expectancy (hence progressive increase in the retirement age)
• Transition to the contributive system (pro-rata) for the calculation of pension benefits
• Two possibilities: – Old age pension– Anticipated pension
Old Age Pension: Post-2012 Eligibility Requirements
Early Retirement Pension: Post-2012 Eligibility Requirements
Earliest age at which Soc Sec Benefits become available
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
201450
52
54
56
58
60
62
64
66
68
Early ret old age men old age women
Source; Brugiavini, Pasini, Weber 2015
Aim of this paper
• Compute a summary measure of pension entitlements known as SSW= social security wealth
• Compare SSW for different groups in the population and explore the effect of pension reforms
• Look at dynamic financial incentives (Option value) of work versus retirement
Data
• We make use of several data sets, but two main ones:
• SHIW from 1989 to 2012, approximately XX observations – all ages
• SHARE (Survey of Health Ageing and Retirement in Europe for the Italian sub-sample) approximately 9000 observations, only 50+
Do workers know about pension reforms?SHIW-Expected retirement age
5556
5758
5960
6162
6364
6566
Mea
n ex
pect
ed re
tirem
ent a
ge
1990 1995 2000 2005 2010Year
1940-1949 1950-1959 1960-1969 1970-1979
Men Women
5556
5758
5960
6162
6364
6566
Mea
n ex
pect
ed re
tirem
ent a
ge
1990 1995 2000 2005 2010Year
1940-1949 1950-1959 1960-1969 1970-1979
How retirement age evolved
5657
5859
6061
Mea
n ef
fect
ive
retir
emen
t age
1980 1990 2000 2010Year
Men Women
SHIW data, only retired individuals
Social Security Wealth SSW
• SSW is the present discounted value of the future benefit stream at a given age, conditional upon survival at future ages and eligibility– The institutional set up is «frozen» at the current
age/year– At each new age the individual updates her/his
information on earnings and on legislation– Need a «future» earnings stream, survival
probabilities and current rules for future eligibility
Estimates of Earnings Profiles (INPS data)
SSW as from age 55 for different retirement ages (SHARE- men)
5000
010
0000
1500
0020
0000
2500
00
SS
W
1985 1990 1995 2000 2005 2010Year
age 58 age 60 age 65 age70
SSW at age 55 by cohort, old age, men (SHARE left panel - SHIW right panel)
SSW at age 55 by cohort, early retirement, men (SHARE left panel - SHIW right panel)
OLS of SSW/10000
Age 1.485*** 1.502*** 1.477** 1.489**Age square -0.011*** -0.011*** -0.011** -0.011**Female -1.783*** -1.778*** -0.692** -0.692**1930-1939 -1.987*** -1.954*** -2.181** -2.150**1950-1959 -0.443* -0.456* -0.357 -0.365*1960-1969 -3.501*** -3.555*** -2.946** -2.982**Bef. 19921992-1995 0.205 0.202 -0.233 -0.2341996-2011 -0.438 -0.487* -0.854** -0.888**After 2011 -4.760*** -4.780*** -5.532** -5.543**White_collar -0.314* -0.567*** 0.298* 0.118Education -1.247*** 0.313**North 1.211*** 1.216*** 0.743** 0.750**South -1.891*** -1.867*** -0.954** -0.938**less_th_HS 0.373** -0.892**College -2.469*** -0.503**Etalav -0.574** -0.570**const -29.160*** -31.361*** -21.789** -21.039**R-squared 0.49 0.49 0.51 0.51OBS 11526 11526 11168 11168
Determinants of SSW - SHIW
Advantages of using the SHARE Data
• If one wants to look at the dynamics needs panel data (long panel)
• Other factors beyond financial incentives could determine the retirement decision (Health)
• Issue of how to measure financial incentives
Dynamic Models
Where t = current age (or time) , β = inter-temporal discount factor, ϒ =parameter of risk aversion. π = survival at time s conditional on being alive at time t. k is also a leisure parameter
Mean OV for men (left) and women (right) – Cohort 1945-1949(SHARE)
Source; Brugiavini, Peracchi 2014
Pathways to retirement
• Reforms of last 20 years progressively reduced incentives/possibility to retire early
• Disability is a potential pathway out of the labour force. Historically the case in Nordic countries, less in Italy
• OV analysis: – from age 63 onwards, men should be indifferent among
pathways– Form age 58 women indifferent between old age and
disability
Testing health effects
• Not all 63 yo men and 58 yo women are eligible for old age / early retirement
• OV: no incentive to delay retirement, if disability available
• Conditional on OV & age, worse health should lead to take up disability benefits
• We can test this implication
Modelling Retirement decisions
• Simple regression model
• Dependent variable: transition into retirement
• Explanatory variables: OV inclusive, health in a given year, quadratic polynomial in age or age dummies, gender, marital status, education level.
• We report probit estimates for different specifications (using a continous health index and health quintiles).
Health index: PCA 1 componentQuestion Comp1
Difficulty lift/carry 0,2897
Difficulty push/pull 0,2864
Difficulty stoop/kneel 0,2838
Difficulty walking 0,2825
Difficulty climbing stairs 0,2799
Difficulty getting up from chair 0,2699
Difficulty with an ADL 0,2694
Self-reported health (fair or poor) 0,2566
Difficulty reach/extend arms 0,2406
Doctor visit (number) 0,2042
Difficulty sitting two hours 0,2012
Ever experience arthritis 0,1952
Difficulty pick up a dime 0,1871
Back problems 0,1836
Source; Brugiavini, Peracchi 2014
Probability of exiting in a given year
Y= Retire in a given year
OV/100.000 -0.037** -0.038** -0.047** -0.049**Hquint_2 -0.011 -0.011 -0.010 -0.008Hquint_3 -0.004 -0.003 -0.003 -0.001Hquint_4 -0.004 -0.002 -0.004 -0.002Hquint_5 -0.021** -0.020** -0.025** -0.023**Age 0.123*** 0.122***Age squared -0.001*** -0.001***Female 0.004 0.008Married -0.005 -0.007Occupation: high skill -0.002 -0.004Occupation: low skill 0.004 0.006High School 0.008 0.009> High School 0.003 0.009
Age dummies No No Yes YesN0bs 2,302 2,302 2,009 2,009Pseudo-R2 0.112 0.114 0.112 0.114
• Financial incentives and eligibility (age) are the key drivers• Good health leads to postpone retirement• Italians do not seem to take advantage of exits through disability: no role for bad health