Optimal Design of Means Tested Retirement Benefits

James Sefton and Justin vandeVen
Authors registered in the RePEc Author Service: Justin William van de Ven

Economic Journal, 2009, vol. 119, issue 541, F461-F481

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. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2009
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