How do different retirement regimes affect the wealth adequacy of retirees?

• Main Authors: Lau, Julia Li Sian, Tan, Eunice Chen Xin, Toh, Puay Qi
• Other Authors: Akshar Saxena
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2023
• Subjects: Social sciences::Economic development
• Online Access: https://hdl.handle.net/10356/165817
• Institution: Nanyang Technological University

This paper presents a comparative study between Defined Contribution (DC) and Defined Benefit (DB) pension schemes and its effects on the wealth adequacy of people nearing retirement. To do so, we extracted data from SHARE and OECD Pension At A Glance databases. Thereafter, using STATA Statistical Software, we transformed the data and utilised a dataset consisting of 7334 observations across 17 European countries, spanning from Year 2007-2015. Using multiple linear regression, we found that DC plans fared better and were more significant in increasing the wealth adequacy of people nearing retirement, after controlling for Age, Retirement Age, Gender, and Years of Education. Further analysis to account for heterogeneity in our data by segmenting our sample by gender and income quintiles also found similar results. Overall, our results support our hypothesis and existing literature which state that wealth adequacy is greater under DC pensions. This can be explained by higher contribution rates observed for DC pensions, which is supported by existing literature. However, we also see and acknowledge that countries with DB pensions also experience high levels of wealth adequacy, which can be attributed to longer years of contributions to pension plans. Hence, this study proposes for further studies into an environment where DC and DB pensions could work as complements to each other.