Estimating economic and social welfare impacts of pension reform

van de Coevering, Clement and Foster, Daniel and Haunit, Paula and Kennedy, Cathal and Meagher, Sarah and Van den Berg, Jennie (2006): Estimating economic and social welfare impacts of pension reform. Published in: Department for Work and Pensions Technical Working Paper (29 November 2006)

Abstract

This paper examines the impact of two effects of the pension reform package that the UK Government put forward in the May White Paper Security in retirement: the likely increase in the number of older people working due to a higher State Pension age and the likely rise in saving due to more people putting away money for retirement. The overall effect of changes to State Pension age and the introduction of personal accounts on UK incomes is likely to be in the range of 0.9 – 3.1 per cent. Although these numbers are relatively small proportions of the total economy, they represent significant sums. In terms of today’s economy, they would be worth around £11 – 38 billion. This paper also applies an innovative economic analysis to examine the scale of the increase in people’s wellbeing as a result of improved consumption smoothing. It finds that if people save for retirement through personal accounts, then generally their wellbeing will be enhanced.

• Item Type: MPRA Paper
• Institution: Department for Work and Pensions
• Language: English
• Keywords: pension reform; consumption smoothing; social welfare
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H31 - Household

References

Barr, N. (1998) The Economics of the Welfare State, 3rd edition, Oxford: Oxford University Press. Barrell, R. (2004) ‘UK Savings and Pensions’, National Institute Economic Review, Vol. 190, No. 1, pp. 55-57. Barrell, R., Choy, A. and Riley, R. (2003) ‘Consumption and housing wealth in the UK’, National Institute Economic Review, Vol. 186, No. 1, pp. 53-56. Barrell, R. and Dury, K. (2003) ‘Asymmetric labour markets in a converging Europe: do differences matter?’, National Institute Economic Review, Issue 183, No. 1, pp. 56-65. Blanchard, O.J. and Fischer, S. (1989) Lectures on Macroeconomics, Cambridge, MA: MIT Press. Blöndal, S. and Scarpetta, S. (1999), ‘The Retirement Decision in OECD Countries’, OECD Economics Department, Working Papers Series, No.202. Department for Work and Pensions (2005), ‘Green Paper: A new deal for welfare: Empowering people to work’, London: The Stationery Office. Department for Work and Pensions (2006), ‘White Paper: Security in retirement: towards a new pension system’ London: The Stationery Office. Department for Work and Pensions (2006), ‘White Paper: Security in retirement: towards a new pension system. Regulatory Impact Assessment and Technical Appendices’ London: The Stationery Office. Frese, M. and Mohr, G. (1987), ‘Prolonged unemployment and depression in older workers: a longitudinal study of intervening variables’, Social Science & Medicine, Vol. 25, No. 2, pp. 173-178. Frey, B. and Stutzer, A. (2002), ‘What can Economists learn from happiness research?’, Journal of Economic Literature, Vol. 40, No. 2, pp. 402-435. Gallo, W., Bradley, E., Siegel, M. and Kasl, S. (2000), ‘Health Effects of Involuntary Job Loss among Older Workers’, The Journals of Gerontology Series B: Psychological Sciences and Social Sciences, Vol. 55, pp. 131-140. 64 Hawksworth, J., PricewaterhouseCoopers (2006) ‘Review of research relevant to assessing the impact of the proposed National Pensions Savings Scheme on household savings’, DWP Research Report Series, No. 373. H.M. Treasury (2003) The green book: appraisal and evaluation in central government, London: The Stationery Office. H.M. Treasury Economic Assessment Team (2004), Macroeconomic Model Documentation. Humphrey, A., Costigan, P., Pickering, K., Stratford, N. and Barnes, M. (2003), ‘Factors affecting the labour market behaviour of older workers’, DWP Research Report series, No. 200. Kahneman, D. (2003) ‘A Psychological Perspective on Economics’, American Economic Review, Vol. 93, No.2, pp 162-168. Kirsanova, T. and Sefton, J. (2006) ‘A Comparison of National Saving Rates in the UK, US and Italy’, European Economic Review (forthcoming). McCauley, E. and Sandbrook, W. (forthcoming) Financial incentives to save for retirement. DWP Research Report Series, No.403. Meadows, P. (2004), The economic contribution of older people, Age Concern Books, Brecon. Newton, B., Hurstfield, J., Miller, J., Akroyd, K. and Gifford, J. (2005), Training participation by age amongst unemployed and inactive people’ DWP Research Report series, No. 291. O’Brien, C., Fenn, P., and Diacon, S. (2005) How long do people expect to live? Results and implications, Centre for Risk & Insurance Studies, University of Nottingham. Office for National Statistics (2006), Labour Force Survey Spring 2006. Pensions Commission (2004), Pensions: Challenges and Choices: the First Report of the Pensions Commission, London: The Stationery Office. Pensions Commission (2005), A New Pension Settlement for the Twenty-First Century – The Second Report of the Pensions Commission, London: The Stationery Office. Romer, D. (2001), Advanced Macroeconomics, Berkeley, CA: McGrawHill. Smeaton, D. and McKay, S. (2003), ‘Working after State Pension age: Quantitative analysis’, DWP Research Report Series, No.182. World Economic Forum (2004), ‘Living Happily Ever After: The Economic Implications of Ageing Societies’, World Economic Forum. Online sources: http://www.gad.gov.uk/