Gemma Tetlow

Annuity choices and income drawdown: evidence from the decumulation phase of defined contribution pensions in England

We provide new empirical evidence on the importance of defined contribution pension wealth in England, and the nature of annuitization decisions taken by older adults who retire with such sources of wealth. Other things equal, financial literacy, and numeracy in particular, are important factors governing individuals’ choices over whether to shop around for an annuity as opposed to taking the ‘path of least resistance’ option and purchasing from their original pension fund provider. This has important policy and welfare implications given that buying an annuity on the open market has significant financial benefits for most people. In the context of the increasing reliance on private provision for retirement, the importance of individuals having the financial literacy to successfully navigate complex financial decisions late in life should not be underestimated.

How does increasing the early retirement age for women affect the labour supply of (women and) their husbands

In 1995, the UK government legislated to increase the earliest age at which women could claim a state pension from 60 to 65 between April 2010 and March 2020. This paper uses data from the first two years of this change coming into effect to estimate the impact of increasing the state pension age from 60 to 61 on the employment of women and their partners using a difference-in-differences methodology. Our methodology controls in a flexible way for underlying differences between cohorts born at different times. We find that women’s employment rates at age 60 increased by 7.3 percentage points when the state pension age was increased to 61. This implies the early retirement age explained almost all excess retirements at age 60 before 2010. Their probability of unemployment increased by 1.3 percentage points. The employment rates of the male partners also increased by 4.2 percentage points. The magnitude of these effects, and the results from subgroup analysis, suggest they are more likely explained by the increase in the state pension age being a shock or through it having a signalling effect rather than them being due to either credit constraints or the effect of individuals responding to changes in their financial incentives to work. Taken together, our results suggest that the fiscal strengthening arising from a one-year increase in the female state pension age is 10% higher than a costing based on no behavioural change, due to additional direct and indirect tax revenues arising from increased earnings.

Policies for an independent Scotland? Putting the Independence White Paper in its fiscal context

Executive Summary Fiscal backdrop • Using the Office for Budget Responsibilitys (OBRs) latest forecasts for the UKs public finances and under the assumption that Scotland would inherit a population share of UK government debt, our calculations suggest that the net fiscal deficit in Scotland would be 5.5% of GDP in the first year of potential independence, 2016–17. This would be around 3% of GDP larger than that for the UK as a whole. • Exactly how Scotlands public finances will look in 2016–17 and how they would evolve in the years immediately after potential independence is uncertain – not least because of uncertainty about the level of revenues that will be derived from oil and gas production and the outcome of negotiations over what share of existing UK debt an independent Scotland would inherit. • However, if an independent Scotland wanted to achieve a sustainable medium-and long-term fiscal position, further tax increases and/or spending cuts would likely be needed after independence. It is against this fiscal backdrop that the policy proposals in the Scottish governments White Paper should be considered. comments, help and advice. They also gratefully acknowledge funding from the Economic and Social Research Council (ESRC) through the Centre for the Microeconomic Analysis of Public Policy at IFS (grant reference ES/H021221/1). The ESRC is supporting a programme of work addressing issues around the future of Scotland. One of the strands focuses on supporting new work at current major ESRC investments before and potentially after the referendum. Tax proposals • The White Paper rightly identifies the UK tax system as overly complex and inefficient. The general aspirations outlined for the tax system of an independent Scotland – such as simplicity, transparency and equity – are admirable but also uncontroversial. • The main revenue-raising measure is the intention to streamline tax reliefs and exemptions and reduce tax avoidance, although precise details on how this would be done are lacking. The Scottish government also plans to increase revenues by abolishing the transferable income tax allowance that will exist in the UK for some married couples from April 2015. • The three main tax cuts mentioned are to air passenger duty, employer National Insurance and corporation tax. The immediate cost of cuts to these taxes could be partially offset by positive knock-on effects on economic activity – for example, an increase in air travel and companies moving profits to Scotland from other jurisdictions. …

Fiscal Challenges and Opportunities for an Independent Scotland

This paper looks at some of the key fiscal questions related to Scottish independence, drawing on detailed analysis of household survey data, official data on public spending and revenues, and using a model of the UK and Scotlands public finances over the next half a century. We examine how and why public spending on, and revenues raised from, Scotland differ from the average across the UK, and how Scotlands fiscal position might be expected to evolve over the next 50 years under current policies.