Means Testing Social Security: Modeling and Policy Analysis

20 Pages Posted: 3 Jul 2016 Last revised: 11 Aug 2016

See all articles by Rafal Chomik

Rafal Chomik

University of New South Wales (UNSW)

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

Alan D. Woodland

University of New South Wales

George Kudrna

University of New South Wales (UNSW)

Cagri S. Kumru

Australian National University (ANU)

Date Written: November 1, 2015

Abstract

Means testing can balance the need to provide adequate retirement incomes with the requirement that such provision is fiscally sustainable and economically efficient. Critics of the policy suggest that to reduce benefits as a retireeā€™s income and/or wealth increase is to discourage work and savings. Yet such distortions are small compared to those resulting from large earnings related pensions that, due to demographic change, require greater levels of financing via payroll taxes. Some form of means testing exists in most countries, usually involving small, safety-net schemes that target the poorest retirees (e.g., the Supplemental Security Income program in the U.S.). But an appropriately designed means-testing instrument can also be used to reduce the liability of large, publicly financed social security promises by excluding the affluent. This paper summarises means-testing design and implementation in a number of OECD countries as well as tackling key criticisms of means testing. In doing so, we discuss a number of recent, cutting-edge modelling approaches and empirical insights that examine economic impacts of means testing in the Australian and U.S. contexts.

Keywords: Australian pension, means testing

Suggested Citation

Chomik, Rafal and Piggott, John and Woodland, Alan D. and Kudrna, George and Kumru, Cagri S., Means Testing Social Security: Modeling and Policy Analysis (November 1, 2015). Michigan Retirement Research Center Research Paper No. 2016-337. Available at SSRN: https://ssrn.com/abstract=2802761 or http://dx.doi.org/10.2139/ssrn.2802761

Rafal Chomik (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Alan D. Woodland

University of New South Wales ( email )

School of Economics
Sydney, NSW 2052
Australia
61293859707 (Phone)
61293136337 (Fax)

George Kudrna

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Cagri S. Kumru

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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