Related to government

• the government may be taking a paternalistic view.
• the government may also be worried that, if citizens do not have sufficient life cover, then they will need to provide financial support. Or if the cover becomes more expensive, some people will be left uninsurered.
• Any suffering caused by (wildfire) will create public demand for something to be done. The government may need to step in and provide financial assistance.
  Hence there will be consequences in terms of government spending and possibly higher taxes/borrowing.
  Failure of the government to act (or seen to be acting) will create bad publicity and will lead to a loss of popularity.
• the government may want a successful insurance industry as a source of taxes … and jobs for its citizenss

How to analyze the behavior of the government

• Is it fair? For fairness we need to consider that people who believe they were promised care are now being denied it. Any change may therefore be unpopular and the government risks being voted out.
  e.g. it is considered unfair to cut off the benefit for someone older than 65 and have no income.
• If the funding of a cost is problematic

• The first step is for the government to decide whether saving should be encouraged or compelled.
• The easiest way would be to compel individuals to do sth.
• an information campaign (can argue that it is better than an advertising campaign)
• cut any benefits that it provides to those in financial hardship
• taxes: contributions made before tax or free of tax accumulations, or increase general tax level
• regulation on investments/products…etc
• enact laws to make insurer responsible for…

• issuing bonds
• issuing Treasury bills
• increasing taxation
• printing money
• selling off government fixed assets (e.g. land, property, nationalised industries).

They also provide financial instruments to cover national debt

• Government securities
• State sponsored savings plans
• Deposits with state banks

Government securities are often seen as the most secure securities which allows organisations to reduce their investment risk because they are seen as having the lowest default risk.

• Direct provision of benefits. (Often pay as you go)
  provide benefits to some or all of the population. Of course, the limiting constraint on how much benefit can be provided is the cost that will have to be met (at some point) in the form of taxes.
  • Everyone gets the same benefit. The major advantage is that it is very simple as all people over a certain age will get paid the same amount of money.
    Similicity leads to smaller administration costs and also reduces the chance of errors. The problem is that if the benefit is used in isolation then the system costs a lot of money, as both the poor and the rich can get the same amount of retirement income.
  • Means-tested benefit. Under a means tested system benefits are awarded based on the level of income people have. In an extreme version people who have high levels of retirement income will get no state benefit which in theory allows more money to be awarded to people with no other retirement income or the minimum amount can be paid and costs are saved.
    Therefore, it is likely to be more politically popular.
    • However, it is discouraging people to save, which will lead to lower than predicted savings in the future (as there will be less people with high retirement income and hence less savings than predicted and more dependency on the state than assumed.)
    • it can be very expensive to run this type of benefits because of extra administration. People will also try to hide their income to get benefits which will again either lead to less savings than predicted or increase running costs as this "fradulent" behaviour which gets investigated.
      It will require elderly and sick people to submit forms on their assets. And this will be needed each year of care if they want to claim government money In addition, as it is a top up to income, details of retirement income will also need to be submitted The forms will also need to be checked and assessed which will increase the costs of running the scheme which will reduce savings
    • Mean-testing can also be viewed as unfair as the high earners will pay most tax during thir lifetime and will get the least benefits.
  • Subject to eligibility criteria.
    It is unfair to have someone who has never worked or never paid any taxes entitled the same benefit.
  • Use other benefits in conjunction with retirement benefits.
    Another solution is to pay a small pension and then allow people with little income to claim other additional benefits.
• Education
  • The State may set out to educate the populace about the benefits of saving for retirement themselves.
  • Hopefully, this will mean that the State has less obligations in the future and will also allow people to have a more ideal retirement.
• Regulation
  • The state needs to provide a framework that allows people to save for their retirement.
  • A balance needs to be kept between the cost and benefit of regulations,
  • A more extreme version of regulation is to compel people or companies to save for retirement

• If the state is the sponsor then it is at risk that costs increase too fast needing tax increases to cover the benefits, which is unpopular with votors.
• However, in its role as regulator the state can also be in trouble if it underwrites part of the private financial providers.

Risk to schemes and stakeholders from the state

• The level of risks from the state will depend on the current state intervention amd how large the change is.

Risks to benefit providers

• If government changes the incentives that apply to a scheme then the costs will increase.