iarep sabe conference 2016, wageningen, nl
TRANSCRIPT
Workplace pension schemes and the effect ofprovision
Evidence from the United Kingdom
Bernardo Fonseca Nunesa
a Behavioural Science Centre, University of Stirling
10/Jul/2016, SABE-IAREP Conference - Wageningen, NL
1 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
1 Saving for retirement
2 AnalysisDataEmpirical strategyResults
3 Further analysis
4 Conclusion
2 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Outline
1 Saving for retirement
2 AnalysisDataEmpirical strategyResults
3 Further analysis
4 Conclusion
3 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Outline
3 pillars: each one requires different degrees of ability toprocess information and make informed decisions:
4 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Saving and investing for retirementHow could saving rates be increased?
Identification and endogeneity problems
5 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Saving and investing for retirement
A worker ends up unpensioned in two ways:
6 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
The case of unpensioned workers
1 Pensions Act 2008Automatic enrolment (nudge) to overcome behaviouralbarriers to opt-in.Incentive = matching contributions;Duty on employers = mandatory provision (2012-2018);
2 ResultsAverage opt-out rate in large companies < 10%;E.g McDonalds, Asda, and Sainsbury’s;DWP revised overall forecast from 30% to 15%;
7 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Nationwide application of default choicesThe "Automatic enrolment" reform
1 Pensions Act 2008Automatic enrolment (nudge) to overcome behaviouralbarriers to opt-in.Incentive = matching contributions;Duty on employers = mandatory provision (2012-2018);
2 ResultsAverage opt-out rate in large companies < 10%;E.g McDonalds, Asda, and Sainsbury’s;DWP revised overall forecast from 30% to 15%;
7 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Nationwide application of default choicesThe "Automatic enrolment" reform
1 This study used data from the period before the reform tosuggest that:
Provision is the major driver of participation;
Even in the absence of imposed regulations on incentivesand in the way workers are enrolled;
8 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
United Kingdom’s caseInformative for policy-making
Alternative policy when "one-nudge-fits-all" solutions are notfirst-best:
1 People are heterogeneous;
2 Public dislike being nudged;
3 Policy-maker prefers to preserve citizens’ decisionautonomy;
9 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Active autonomous choices
Alternative policy when "one-nudge-fits-all" solutions are notfirst-best:
1 People are heterogeneous;
2 Public dislike being nudged;
3 Policy-maker prefers to preserve citizens’ decisionautonomy;
9 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Active autonomous choices
Alternative policy when "one-nudge-fits-all" solutions are notfirst-best:
1 People are heterogeneous;
2 Public dislike being nudged;
3 Policy-maker prefers to preserve citizens’ decisionautonomy;
9 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Active autonomous choices
1 Saving for retirement
2 AnalysisDataEmpirical strategyResults
3 Further analysis
4 Conclusion
10 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Outline
Relationship: Provision→ MembershipWorkplace pension scheme provision and membership;Job characteristics;Socio-demographics.
11 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
Relationship: Provision→ MembershipWorkplace pension scheme provision and membership;Job characteristics;Socio-demographics.
11 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
Relationship: Provision→ MembershipWorkplace pension scheme provision and membership;Job characteristics;Socio-demographics.
11 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
We use data of employed workers (N=89,760; i=15,481):No provision, not member = 25,905;Offered, not member = 16,724;Offered, member = 47,131.
12 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
We use data of employed workers (N=89,760; i=15,481):No provision, not member = 25,905;Offered, not member = 16,724;Offered, member = 47,131.
12 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
We use data of employed workers (N=89,760; i=15,481):No provision, not member = 25,905;Offered, not member = 16,724;Offered, member = 47,131.
12 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
British Household Panel SurveyWaves 2-18, years 1992-2009
Pr[pit = 1] = Φ(γ1Jit + β1Xit + ωt ) (1)
pit = an indicator variable denoting whether the employer runsa pension scheme, Jit = a vector of job characteristics, Xit = avector of socio-demographics, Φ(•) = a cumulative distributionfunction.
13 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyBinary outcome model
Pr[pit = 1] = Φ(γ1Jit + β1Xit + ωt )
14 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyEquation (1): pension provision
Pr[pit = 1] = Φ(γ1Jit + β1Xit + ωt )
15 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyEquation (1): pension provision
Pr[pit = 1|J,X ] = sit (J,X ) (2)
p ⊥ X , J| s(J,X ) (3)
sit ∈ (0,1) = a propensity score for provision (conditional on Jand X );
Equation 3 is a balancing condition, which states that forindividuals i and j with the same s, assignment to provision isas random and identical in terms of J,X.
16 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyBalancing condition
17 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
ResultsBalancing condition
18 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
ResultsExact matching on wave (2-18)
19 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
ResultsExact matching on workers (ranges 1-9)
Ait (s(J,X )) = {sjt | min ‖sit − sjt‖ < r} (4)
Ait is an identifiable set, meaning that a nearest neighbourcontrol case with estimated s falling within radius r is matchedto the i th case at time t ;
20 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyCaliper distance NN 1:1 matching
21 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyCommon support
δ = E [Y |p = 1]− E [Y |p = 0]︸ ︷︷ ︸= Zero
(5)
δ is the estimated effect of provision of workplace pensions onmembership; and Y is a binomial outcome denotingmembership [Yes = 1, 0 otherwise].
22 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Empirical strategyMatching on propensity scores estimation
23 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
ResultsEquation (5): matching on propensity scores
24 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
ResultsEquation (5): MPS - private sector only
Hidden bias Γ
How strongly an omitted variable must influence the selectionprocess in order to undermine the implications of the matchinganalysis.
25 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Sensitivity analysisMH bounds
26 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Sensitivity analysisMH bounds - hidden bias
1 Saving for retirement
2 AnalysisDataEmpirical strategyResults
3 Further analysis
4 Conclusion
27 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Outline
Pr[Yit = 1|pit = 1, pi,t−1 = 0] = Φ(α2 + γ2Jit + ρ2Fit + β2Xit )
1 Job characteristics(+) Sector: government, NHS, higher education(+) Earnings (base salary, bonus)(+) Permanent contract
2 Socio-demographics(-) Dependent children(-) Education: no degree
3 Short-run opt-in rate = 35%
28 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Transitions in provision of a schemeWorkers who just got offered a plan [N = 3,757]
Pr[Yit = 1|pit = 1, pi,t−1 = 0] = Φ(α2 + γ2Jit + ρ2Fit + β2Xit )
1 Job characteristics(+) Sector: government, NHS, higher education(+) Earnings (base salary, bonus)(+) Permanent contract
2 Socio-demographics(-) Dependent children(-) Education: no degree
3 Short-run opt-in rate = 35%
28 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Transitions in provision of a schemeWorkers who just got offered a plan [N = 3,757]
Pr[Yit = 1|pit = 1, pi,t−1 = 0] = Φ(α2 + γ2Jit + ρ2Fit + β2Xit )
1 Job characteristics(+) Sector: government, NHS, higher education(+) Earnings (base salary, bonus)(+) Permanent contract
2 Socio-demographics(-) Dependent children(-) Education: no degree
3 Short-run opt-in rate = 35%
28 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Transitions in provision of a schemeWorkers who just got offered a plan [N = 3,757]
1 Saving for retirement
2 AnalysisDataEmpirical strategyResults
3 Further analysis
4 Conclusion
29 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Outline
1 Provision has a major policy effect even in the absence ofdefault options or price subsidies enforced by law;
2 Policy alternative = universal provision + active decisions;3 Preserves choice autonomy
30 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Conclusion
1 Provision has a major policy effect even in the absence ofdefault options or price subsidies enforced by law;
2 Policy alternative = universal provision + active decisions;3 Preserves choice autonomy
30 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Conclusion
1 Provision has a major policy effect even in the absence ofdefault options or price subsidies enforced by law;
2 Policy alternative = universal provision + active decisions;3 Preserves choice autonomy
30 / 30Workplace pension schemes and the effect of provision
Saving for retirement Analysis Further analysis Conclusion
Conclusion
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31 / 30Workplace pension schemes and the effect of provision
Bernardo Fonseca Nunes
Behavioural Science CentreTwitter: @_bernardofnUniversity of StirlingScotland
Email: [email protected]
www.stir.ac.uk