Portfolio Allocation in the Face of a Means‐Tested Public Pension

25 Pages Posted: 28 Jul 2011

See all articles by Deborah A. Cobb-Clark

Deborah A. Cobb-Clark

School of Economics, University of Sydney; IZA Institute of Labor Economics

Vincent A. Hildebrand

York University - Department of Economics; CEPS/INSTEAD

Date Written: September 2011

Abstract

We investigate whether households adjust their asset portfolios just prior to retirement in ways that are consistent with maximizing eligibility for a means‐tested public pension. We utilize detailed micro data for a nationally‐representative sample of Australian households to estimate a system of asset equations which are constrained to add up to net worth. Our results provide little evidence that healthy households or couples are responding to the incentives embedded in the means tests determining pension eligibility by reallocating assets. While there are some differences in asset portfolios associated with having an income near the income threshold, being of pensionable age, and being in poor health, these differences are often only marginally significant and are not clearly consistent with the incentives inherent in the Australian age pension eligibility rules. Any behavioral response to the incentives inherent in the age‐pension means test appears to be predominately concentrated among single pensioners who are in poor health.

Suggested Citation

Cobb-Clark, Deborah A. and Hildebrand, Vincent Alexandre, Portfolio Allocation in the Face of a Means‐Tested Public Pension (September 2011). Review of Income and Wealth, Vol. 57, Issue 3, pp. 536-560, 2011. Available at SSRN: https://ssrn.com/abstract=1897991 or http://dx.doi.org/10.1111/j.1475-4991.2011.00437.x

Deborah A. Cobb-Clark (Contact Author)

School of Economics, University of Sydney ( email )

606 Social Sciences Bldg. (A02)
The University of Sydney
Sydney, NSW 2006
Australia
61435061387 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Vincent Alexandre Hildebrand

York University - Department of Economics ( email )

363 York Hall
Glendon College
Toronto, Ontario, M4N 3M6
Canada
416-736-2100 x 88591 (Phone)
416-487-6852 (Fax)

CEPS/INSTEAD ( email )

B.P.48
Differdange, L-4620
Luxembourg

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