Loretti Dobrescu, Akshay Shanker, Hazel Bateman, Ben R Newell and Susan Thorp

Abstract: We study the relation between retirement savings and housing using a life cycle model of consumption and portfolio choice with risky earnings, lumpy housing with collateralized borrowing, and financial assets inside and outside pension plans. We consistently find complementarity from pensions to housing, and substitutability in reverse. The mechanism behind this asymmetry, and especially how it unfolds across genders, stems from behavioral and housing frictions that jointly drive the timing of savings: incentivizing pension savings boosts homeownership in anticipation of a prosperous retirement, while more attractive housing absorbs pension investments. Decomposing the gender differential in lifetime savings, we show that earnings inequality and preferences drive 64.2% of the wealth gap, behavioral frictions explain another 33.5%, and housing adjustment costs, that affect males and females differently, account for the rest.

Keywords: life cycle savings, portfolio choice, pensions, housing, method of moments.

Yue Hua and George Kudrna

Abstract: Progressive income contingent loans (ICLs) for college students, where repayment rates increase with income, may provide additional insurance against income risks after graduation. We study how the progressiveness of ICLs affects life-cycle behaviors and welfare. We document stylized facts on education in Australia, where recent reforms made ICLs more progressive. We found correlations between reforms and enrolment rates. We estimate income dynamics and found that progressive ICLs provide more insurance in the first repaying years. Lastly, we build a heterogenous-agent life-cycle model and find that progressive ICLs induce higher education attainment and welfare than non-contingent loans or linear ICLs.

Keywords: Student loans, income-contingent repayment, income dynamics, heterogeneous-agent life-cycle model

Hélène Morsomme, Jennifer Alonso-García and Pierre Devolder

Abstract: Population ageing undermines traditional social security pension systems that combine pay-as-you-go (PAYG) and defined benefits (DB). Indeed, demographic risk, if guaranteed benefits remain unaltered, will be borne entirely by workers through increases in the contribution rate. To avoid a substantial increase of the contributions and in order to maintain simultaneously the financial sustainability and the social adequacy of the public pension system, risk sharing and automatic balancing mechanisms need to be put in place. We present a two-step convex family of risk-sharing mechanisms. The first shares the risk between contributors and retirees through adjustments in the contribution rate, used to calculate the global covered wage bill, and the benefit ratio that represents the relationship between average pensions and wages. The second step studies how the retirees’ risk should be shared between the different retirees’ generations through adjustments in the replacement rate and a sustainability factor that affects pension indexation during retirement. We perform a detailed study of the effect of social planner’s targets and solidarity weight between various generations in a deterministic and stochastic environment.

Keywords: risk-sharing, automatic balancing mechanisms, pension design, ageing

George Kudrna, John Piggott and Phitawat Poonpolkul

Abstract: This paper develops a general equilibrium overlapping generation model with heterogenous households to study pension reforms in emerging economies with large informal employment and rapid population ageing. Using Indonesia, a country in which 80% of the labour force works in the informal sector, and which confronts a 5-fold increase in the 65+ share of the population this century, as our exemplar economy, we assess, both separately and in combination, the impact of increasing the pension access age for formal labour and introducing a flat-rate social pension for informal labour. Households are differentiated by skill and employment type, and confront idiosyncratic labour income and survival shocks. The micro/household behaviours are calibrated with Indonesian Family Life Survey (IFLS) data, along with recent World Bank macro and fiscal data to target some macro moments. The benchmark model assumes tax and pension policy settings applicable solely to formal labour. We show that in a model incorporating population ageing, the combined reforms would significantly improve aggregate welfare for both groups: flexibility in late life work in the formal sector benefits those workers, while informal workers benefit from the social pension, set at 6.5% of per capita GDP. The incremental revenue requirement, taking account of both the reduced formal pension outlays and the cost of the social pension, is calculated to be about 1.5% of GDP.

Keywords: Population Ageing, Informal Labour, Retirement Policies, Social Security, Redistribution, Life Cycle, Stochastic General Equilibrium.

Do Won Kwak and Jong-Wha Lee

Abstract: An aging workforce has adversely impacted the economy in Korea, amid growing fiscal challenges associated with providing pension and healthcare for older people. The increasing elderly population has raised concerns about the diminishing quality of life among seniors. This study explores the impact of retirement and re-employment on the life satisfaction of older individuals, utilizing longitudinal data from 2008 to 2020. To address endogeneity concerns, we use statutory eligibility ages for retirement pension benefits and the expected monetary value of these benefits as instrumental variables for retirement and re-employment status. Our findings suggest that retirement leads to a significant reduction in overall life satisfaction among older individuals. Conversely, life satisfaction improves significantly when retired individuals are re-employed. This study examines the dynamic effects of retirement on life satisfaction by employing the event study framework and investigating the reversal of retirement through re-employment. The findings emphasize that the life satisfaction of older individuals can be enhanced through policies that enable them to extend their employment or pursue new opportunities after retirement.

Keywords: aging, retirement, re-employment, life satisfaction, longitudinal study, pension

 Roshen Fernando and Caterina Lepore

Abstract: This paper evaluates the global economic consequences of physical climate risks under two Shared Socioeconomic Pathways (SSP 1-2.6 and SSP 2-4.5) using firm-level evidence. Firstly, we estimate the historical sectoral productivity changes from chronic climate risks (gradual changes in temperature and precipitation) and extreme climate risks (representative of heatwaves, coldwaves, droughts, and floods). Secondly, we produce forward-looking sectoral productivity changes for a global multisectoral sample of firms. For floods, these estimates account for the productivity changes from the damage to firms’ physical capital. Thirdly, we assess the macroeconomic impact of these shocks within the global, multisectoral, intertemporal general equilibrium model: G-Cubed. The results indicate that, in the absence of additional adaptation relative to that already achieved by 2020, all the economies would experience substantial losses under the two climate scenarios, and the losses would increase with global warming. The results can be useful for policymakers and practitioners interested in conducting climate risk analysis.

Keywords: Climate change, Climate risks, Extreme events, Macroeconomic modelling

Kyu Park and Michael Sherris

Abstract: With increasing numbers of Australians in or entering retirement, the modelling of functional disability and health status is critical to the insuring and financing of retirement risks for both governments and individuals. The multi-state modelling of these risks underlie projections of the population by functional disability status, the estimation of healthy life expectancy, the sustainable financing of public aged care and innovations in private long-term care insurance. Developing a model for the Australian population is challenging because of the lack of longitudinal health and mortality data for older Australians. We use the cross-sectional data in the Survey of Disability, Ageing and Carers for years 1998, 2003, 2009, 2012, 2015 and 2018, providing prevalence of functional disability and illness across 20 years, to estimate a multi-state transitions model that best explain the observed changes of prevalence in Australia. We develop and estimate for the first time an Australian model for transitions between five states (healthy, disabled but not ill, ill but not disabled, disabled and ill, and dead) using age, sex and trend factors for those aged 60 or greater. Functional disability is defined by autonomy of activities of daily living. Illness is defined by chronic illness conditions including heart problems, diabetes, lung disease, and stroke. Model estimation is done numerically. Using the fitted model, we estimate yearly transition probabilities, life expectancy of retirees and projected population distributions by functional disability and health states. We also provide a comparison of the results with previous studies.

Keywords: functional disability, activities of daily living, multiple state model, cross-sectional data, life expectancy, long-term care insurance

Lingfeng Lyu

Abstract: This paper presents a tri-level hierarchical approach to house price modelling at the postcode level, which is considered the most granular geographical scale, incorporating macroeconomic influences from the national level and integrating data from the largest sub-state level (SA4). By employing a Risk Premium - Principal Component Analysis (RP-PCA) for SA4-level risk factors and combining these with national-level risk factors, a vector autoregressive (VAR) model is developed. This geographically conditional multi-factor model with a hierarchical structure offers enhanced short-term prediction accuracy while maintaining long-term forecasting capabilities. The model’s predictive accuracy is further enhanced by introducing an empirical copula to describe the dependence structure of one-step residuals across various suburbs. This methodology grants a dynamic and granular view of housing price trends in Australia. Key determinants like interest rate shifts, GDP growth, and exchange rate variances play a crucial role, particularly in urban areas in metropolitan cities. The analysis of economic and demographic factors on the SA4 level indicates that elements such as home debt increments, wage fluctuations, and population shifts are pivotal in shaping housing prices, underscoring the significance of a granular regional analysis.

Keywords: House price modelling, Hierarchical framework, Macroeconomic variables, Risk Premium - Principal Component Analysis (RP-PCA)

Lingfeng Lyu

Abstract: This research evaluates the Home Equity Access Scheme (HEAS) versus downsizing for older Australians, factoring in elements such as means tests, health expenditures, taxes, and home maintenance. It builds on a utility approach, considering region-specific house prices and longevity risks. Findings reveal that HEAS enhances healthy aging for healthy and mildly disabled retirees more than downsizing. This scheme benefits cash-poor but asset-rich retirees who have lower bequest motives, derive higher satisfaction from spacious homes, and prioritise long-term gratification. However, spatial disparities in housing prices and life expectancy decrease the uptake of HEAS, offering new perspectives on housing decisions among seniors in Australia.

Keywords: Home Equity Release, Reverse Mortgage, Downsizing, Healthy Ageing, Utility Approach.

Cheryl Sykes and Marylène Gagné

This report presents a detailed qualitative study of mature age individuals navigating Australia's mandatory employment services while on income support. Aimed at exploring the challenges and experiences of these jobseekers, the study utilised open comments from online surveys across five time intervals with a sample of 173 respondents. Participants comments are discussed through three themes:

Additional quantitative insights were gained on two other factors of interest: occupational and worker identities and their relationship with future job prospects.