The Payout Stage in Chile and Singapore--and implications for older women by Estelle James

2 Why do pension plans have different effects on men and women? Women have lower lifetime earnings than men, therefore smaller retirement savings –work less –earn lower wage rates Women live longer than men –Therefore need more retirement income, not less –longevity insurance, price indexation more important –Are younger than, likely to outlive husbands, therefore survivors’ insurance important (cost of living of individual 70% cost for couple) Most very old people are women and very old women are often pockets of poverty

3 The accumulation stage in Chile and Singapore Chile— –10% net contribution + 3% for survivors’ & disability insurance+admin fee –Can’t take out until retirement –Real rate of return —10% Singapore: –30-40% contribution rate –But can take out for housing—most do, leaves less for retirement –Is survivors & disability insurance provided during accumulation? –Real rate of return about 1.5%

4 Balance at retirement similar in two countries and balance/wage ratio much higher in Chile Despite lower contribution rate and lower wage Because no withdrawal for housing, higher rate of return (would hold even if rate were cut in half in Chile) Average accumulation similar to Minimum Sum But this buys larger pension/wage (replacement rate) in Chile because wage much lower This is especially important for women

5 Age of retirement Chile: –65 for men, 60 for women –Early retirement possible if have 50% replacement rate (ratio of pension/wage) –60% retire early, so we know their RR>50% Singapore: –62 but must put minimum sum aside at 55 –Very few retirees have 50% replacement rate Probably retirement age is too low in both countries, especially for women, as longevity increases

6 Payout choices limited in both countries Chile: –Annuity or programmed withdrawal –Lump sum not allowed unless RR>70% –2/3 have chosen to annuitize (marketing, tied to ER) Singapore: –Annuity, CPF or bank for Minimum Sum –Lump sum allowed for rest –Very few annuitize Conditions for lump sum much easier in Singapore, RR of remainder much less than 70%. Retirees and their spouses may run out of money before they die—especially women

7 Annuities market Chile: –2/3 retirees annuitize—aggressive marketing by insurance companies, favored by regulations –Participating annuities not allowed--misinformation –Indexed pensions required—protects long-lived by shifting benefits from young old to very old; indexed investment instruments needed –Annuities pay MWR=>100%, govt interest rate (MWR = EPV of lifetime payouts/initial premium) Singapore: –Little annuitization, indexation not required or available, little marketing (small accumulations) –Most annuities are participating—do workers trust? –Annuities paid MWR>100% in 1999 but less now Longevity and inflation insurance especially important for women; weak in Singapore

8 Protection for wives and widows Chile: –Survivors benefits required during work stage –Married men must purchase joint pension (joint annuity or joint PW) when they retire--financed by lower pension for husband, not by state –Widows can keep their own pension in addition to widow’s benefit (in many countries they must choose) –Widows maintain previous hh standard of living –Married women biggest gainers from pension reform Singapore: individual annuity; survivors benefits? Does wife get first claim on return of capital?

9 Other annuity issues re gender Gender-specific tables used in both countries— unisex tables used in Europe and US employment plans--controversial. But this matters less when joint annuity is used Divorced women –Divorce still not common in either country but increasing in Singapore; just became legal in Chile –Are account balances split upon divorce? What about survivors’ benefits and joint annuity? Remains to be determined Chile Partner rights in non-married couples?

10 Income floor Chile: –MPG sets floor on pension and survivors’ benefits—for workers who have contributed at least 20 years and their survivors –Ad hoc indexation to wages—25% average wage –Financed by general treasury –Mainly protects low earning women & widows –Social assistance protects non-contributing women Singapore: –No MPG; means-tested benefits?

11 Conclusion Chile: –has oriented its program toward retirement pensions and protection for survivors, so high accumulation –competition brings high rate of return and RR, makes annuitization popular –indexed pension protects long-lived, survivors’ benefit & joint annuity protects widows, MPG protects low earners—policy choices –This provides high protection for older women Singapore –many purposes, mainly housing, so low accumulation –non-competitive, lower rate of return and RR, annuitization not used much (why?) –no indexation, survivors’ benefits, joint annuity, MPG –will leave very old women and widows, who outlive voluntary savings, in difficult financial condition