The design of welfare benefits is a tricky business. In this respect, James Meade placed particular emphasis on the importance of avoiding excessive distortions to the price of labour. Nevertheless, Meade noted that means testing is likely to be desirable in view of the “hideously expensive” cost of universal benefits provision — he conjectured that a 50% withdrawal rate on welfare benefits might be appropriate. In this study we take a fresh look at the role of means testing in the provision of retirement benefits in the United Kingdom. We use an articulated rational agent model of the household to explore the effects on expected lifetime utility of alternative budgetary neutral pensions arrangements. In this context, we find that extensive means testing of retirement benefits is preferred, consistent with the conjectures stated by Meade. Our analysis highlights the importance of taking into account the distortions associated with alternative methods of benefits financing when considering pensions reform.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number
299.