Inequalities in pension participation and financial wellbeing in retirement

In this thesis, I study the causes of and potential solutions to inequalities in pension participation and financial wellbeing in retirement. In particular, I focus on the role of mental health and educational disparities in perpetuating long-term inequalities in retirement savings, income and wealth. Chapter 1 provides the motivation underlying this thesis and introduces the theoretical background, methods, and findings of the three subsequent chapters. Chapter 2 provides novel evidence of a mental health gap in pension participation in the UK using nationally representative longitudinal data from Understanding Society (UKHLS). Beginning in 2012, the UK government introduced automatic enrolment enabling an evaluation of one of the largest pension policy reforms in the world on the mental health gap in pension participation. Mental health is measured using the General Health Questionnaire (GHQ-12) which is a commonly used tool for measuring psychological distress. Prior to automatic enrolment, male and female private sector employees with poor mental health are 3.7 and 2.9 percentage points less likely to participate in a workplace pension scheme respectively after controlling for key observables. The implementation of automatic enrolment removes the mental health gap in pension participation, equalising the pension participation rates of individuals with and without poor mental health in the private sector. By employing a nationally representative cohort panel from the US (NLSY1997), Chapter 3 shows that poor mental health early in life is associated with lower retirement savings. Adolescents (16 to 20 years old) with poor mental health are 4.7 percentage points less likely to have access to and 8.9 percentage points less likely to participate in employer sponsored pension plans at age 30-35. There is no significant difference in pension participation rates when individuals with poor mental health have access to plans. The negative association between adolescent mental health and pension participation is largely explained by access to a plan, earnings, income, and employment status. These findings suggest that early mental health conditions are linked to less favourable employment conditions which lowers access to and participation in employer sponsored pension plans. While earnings accounts for most of the association between psychological distress and pension participation, the role of education is potentially far-reaching as it is a key predictor of lifetime earnings. Following on from the findings on the importance of education in Chapter 3, Chapter 4 investigates whether increasing education can improve financial wellbeing in retirement. To evaluate the causal effect of a year of education, this chapter exploits the 1947 reform to the minimum school-leaving age in England from 14 to 15 years old. This chapter employs a fuzzy regression discontinuity design using the English Longitudinal Study of Ageing (ELSA) which is a longitudinal cohort study representative of the 50+ year old population living in private households in England. Specifically, the average of household-level equivalised annual income, net financial wealth, and total wealth measured between age 75 and 80 years old for cohorts born five years within the reform cut-off date are compared. This chapter focuses on individuals who are at the greatest risk of lower levels of educational attainment. In the context of the 1947 reform, these are individuals who remained in school for one additional year after the introduction of the reform and dropped out at age 15. The additional year of schooling had no statistically significant effects on retirement income and wealth for individuals closest to the threshold of being affected based on the treatment status of the head of household or both partners within a household.