Timothy Higgins

Discussions on long-term financial choice

We analyse focus group discussions about long-run (retirement) financial decisions, and explore the extent to which participant responses are related to the oft-used behavioural explanations of financial choice. We find that persons of all ages understand the importance of long-term savings, but face many challenges in preparing for retirement. There is mixed support for a range of associated behavioural explanations. Complexity, relevance of decisions, and uncertainty come up repeatedly in all focus groups, irrespective of the age of the participants. The use of heuristics, confidence, costs of mistakes, mental accounting, and the importance of social interaction appeared of less immediate relevance to all groups. We discuss the implications of these findings for how the financial services and superannuation industries communicate with members. There appears to be a general view from the focus groups that breaking large, complex retirement decisions into more manageable pieces (based on personal circumstances) and providing more focused and relevant information to investors would result in more effort and care expended on retirement decisions.

A Regression Model of Mortality, with Application to the Netherlands

Regression methods are used to model and estimate a measure of the mortality of a population as a function of time and age. The measure of mortality used is the logit (or log odds) of the cohort time and age-specific probability of death and it is shown how a parameterised model can be estimated by weighted least squares. The method is applied to historical 1890–1990 data of male and female mortality for ages 40 and above in the Netherlands. The fitted regressions provide the point of departure for the predictive model and forecasts developed in the next chapter.

Forecasting Mortality from Regression Models: The Case of the Netherlands

This chapter continues the discussion of Chapter 3 in which regressions for male and female mortality for ages 40 and above in the Netherlands were estimated. A naive forecast of mortality can be obtained by extrapolation. However, a plausible forecast may require modification of the fitted model to obtain what is called a predictive model. A model of this sort is described and the resulting forecasts of period and cohort life expectancy and log(odds) are compared with those produced by extrapolations of the descriptive model. Period and cohort life expectancy for selected ages above 40 and for selected years to 2050 are given. A final section discusses the forecasts obtained from regression models using the perspective of the official national forecasts of Dutch mortality.

The Costs of Unpaid Higher Education Contribution Scheme Debts of Graduates Working Abroad

The Higher Education Contribution Scheme (HECS) is an income‐contingent loan designed to collect tuition from Australian university students. The debt is collected on the basis of recorded incomes and, as a consequence, debtors living overseas will not repay. Using various data sources and assumptions, multiple scenarios are considered in order to estimate the extent of uncollected overseas debt. A conservative estimate of the amount of foregone HECS revenue for the 1989–2011 graduate cohorts working overseas is over

REGRESSION MODELLING OF MORTALITY SURFACES AND THE DECELERATION OF MORTALITY

400 million, but it is shown that, under other plausible assumptions, the foregone revenue may be close to double this amount.

Improving Paid Parental Leave through Income Contingent Loans

A mortality surface is a measure of mortality indexed by year and age. A central limit theorem for aggregate data is established for the mortality surface defined by the logistic transform of the year and age-specific probability of death and this is used to postulate and estimate a regression model. Extra variance may be the result of heterogeneity within cohorts, and it is shown how the model based on aggregate data could be decomposed to accommodate sub-cohorts by using proportional odds. In the absence of disaggregated data, excess variance is modelled as a function of age and year and estimation is done by maximum likelihood. The parametric surface so estimated is used to examine deceleration of mortality at old ages and trends in deceleration are discussed with reference to selection and heterogeneity. The results are applied to mortality data from the Netherlands for 1890–1991, ages 50–90.

Introducing Enterprise Risk Management Into the University Classroom: A Case Study

It is argued in this chapter that income contingent loans (ICL) may provide an efficient and equitable option for extending taxpayer funded paid parental leave (PPL) schemes, which may be otherwise limited in duration and payment amounts due to fiscal pressures. As is the case for higher education, a lack of liquidity and market failure can prevent families from financing an extension of leave beyond that typically offered in most OECD countries through taxpayer funded PPL. It is argued that an ICL could provide consumption smoothing and encourage participation, yet taxpayer costs could be kept low (if not zero) provided scheme design mitigates against adverse selection and moral hazard. It is further argued that an appropriately designed scheme could be welfare enhancing to parents even in the absence of taxpayer subsidies.

Income Contingent Loans for Social Policy: the Case of Paid Parental Leave

This article reports on the challenges faced when enterprise risk management courses (commonly studied by practitioners after several years of actuarial practice) were introduced into a postgraduate coursework degree, and taught concurrently with Actuarial Control Cycle (Part II) units. A small sample of students were interviewed, and the information gleaned from these interviews combined with the reflections provided by teaching staff is used to argue that although not problem-free, the overall gain to students makes the project worthwhile. Assessment structure and use of class time in particular are examined as key features of the class, and potential improvements are suggested.

Implications of Earnings Model Complexity to Costing Income Contingent Loans

Income contingent loans (ICL) may provide an efficient and equitable option for extending taxpayer-funded paid parental leave (PPL) schemes, which may be otherwise limited in duration and payment amounts due to fiscal pressures. A lack of liquidity and market failure can prevent families from financing an extension of leave beyond that typically offered in most OECD countries through taxpayer-funded PPL. It is argued that an ICL could provide consumption smoothing and encourage participation, yet taxpayer costs could be kept low (if not zero) provided scheme design mitigates against adverse selection and moral hazard. An appropriately designed scheme could also be welfare enhancing to parents even in the absence of taxpayer subsidies.

Income contingent loans : theory, practice and prospects

The implications of earnings model complexity to costing income contingent loans (ICL) are investigated. Models of hourly wage are developed using the first seven waves of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, starting with a simple mean fit. The residuals are decomposed into permanent and transitory components, and it is shown that the variance components differ depending on employment state. The permanent component is modelled as a random walk, with both Gaussian and non-Gaussian permanent and transitory shocks. The hourly wage models are combined with models of hours per week. Annual earnings are simulated using a Monte Carlo process, and outstanding debt is estimated for a hypothetical ICL while keeping labour force state fixed. It is found that under both the Australian ICL scheme for higher education (HECS) and a modified scheme design, and under both full-time and part-time static employment states, dynamic stochastic earnings models lead to lower projected debt, and significantly lower subsidies than under static earnings models.