Optimal Design of Means Tested Retirement Benefits

Authors: Sefton, James¹; van de Ven, Justin²

Source: The Economic Journal, Volume 119, Number 541, November 2009 , pp. F461-F481(1)

Publisher: Blackwell Publishing

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Abstract:

Design of welfare benefits is a tricky business. In this regard, James Meade believed that it is important to avoid excessive distortions to the price of labour. He also recognised that means testing is a useful way of limiting the `hideously expensive' cost of universal benefits provision; he conjectured that a 50% claw-back rate might be appropriate. We use a rational agent model to explore the welfare effects of alternative retirement benefits arrangements in the UK. Our analysis supports an extensive role for means testing, consistent with Meade's conjecture, and highlights the distortions associated with alternative methods of benefits financing.

Document Type: Research article

DOI: 10.1111/j.1468-0297.2009.02316.x

Affiliations: 1: Imperial College of London, NIESR 2: NIESR

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