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Asset-based welfare

Area: Policy and financing

In Europe, increasingly longevity is driving the trend towards an ageing population . Furthermore, at a global level, average life expectancy has increased over the last fifty years from 58.6 years in 1970 to 72.7 years in 2019 (World Bank, 2021), and could reach 76,6 years by 2050 (Statista, 2021). In the literature reviewed, “older people'' are described as the population aged 65 and over (Harper et al., 2016; Johnson, 2015). A recent UK study (Harper et al., 2016) found that the average age of the UK population exceeds 40 years for the first time in history. The same study predicts the working age group of older people, which makes up the population aged 50-66, will increase from 26% in 2012 to 34% in 2050, an increase of 5.5 million people.
 

However, longevity is not usually accompanied by an understanding of the quality of living. The increase in the elderly population is overwhelming the health care system of the modern welfare state. The elderly are becoming more dependent on health services, while the support of younger generations is decreasing due to their increased occupational mobility and different lifestyles (Bađun & Krišto, 2021).

 

Asset-based welfare could be defined as a set of policies and measures that address and promote individual wealth accumulation over the course of our lives in order to reduce an individual's dependence on the pension system through the consumption of that asset (Lennartz & Ronald, 2016). There could be many forms of asset-based welfare, and it should be oriented toward the local context. For example, asset-based welfare is embedded in the housing market in Japan, Singapore and South Korea (Doling et al., 2013); (Oh & Yoon, 2019). Retirees in the US or the UK are more likely to finance a reverse mortgage, while retirees in post-socialist countries are more likely to enter into care exchange contracts or an intergenerational transfer.

 

In the post-socialist countries of Eastern Europe, most pensioners are homeowners who have high assets and low monthly income (Kunovac, 2020). For pensioners who became homeowners during their working years, there are a few ways to use their homes in order to secure a higher standard of living in retirement. There are two main scenarios for using your assets to increase the standard of living: one is to move out of the current home, either by downsizing or selling it; the other does not require moving and usually involves renting part of the home or entering into a financial transaction such as a reverse mortgage or insurance contract (Bađun & Krišto, 2021). Both scenarios represent asset-based welfare, as assets (rather than income) are used to increase well-being. In the past, asset-based welfare used to be practised in traditional rural communities when elderly people without successors contracted with their neighbours to provide for them in exchange for their family assets.

 

The European financial market for asset-based welfare is at an early stage of development and is only available to a limited extent in the UK, Spain, France and Germany (Bađun & Krišto, 2021). In other countries, there are different forms of transaction in play. For example, according to a survey carried out by the European Commission, 86% of the Croatians prefer to take care of their parents, rather than having their parents sell their property to increase their income (Bađun & Krišto, 2021).  Similar results could be found in other post-socialist countries with a high level of “familialism”, i.e., intergenerational living with strong family ties (Eggers et al., 2020; Sendi et al., 2019; Stephens et al., 2015) , and homeownership, where the idea of “consuming” the equity to pay for old-age care is unpopular. According to (Kerbler & Kolar, 2018), the Slovenian pensioner, even if starving, would rather not sell or mortgage their homes, while according to Sendi et al., (2019) pensioners in Slovenia “strongly reject all equity release products”.

 

A potential model of asset-based welfare that could be implemented in Croatia was presented in 2015 in the policy document “Social picture of the City of Zagreb” (CERANEO, 2016). This model would represent an innovation in social welfare by creating an institutional support for a contract through which the assets would be transferred to the city after the death of the person and in return the city would provide care for the elderly. This contract would ensure adequate care for the elderly and provide the city with a housing stock for public or social rental. In addition, this type of contract would be a viable alternative to the current practise of doing business under a "lifetime support contract" or a "support contract until death". In 2021, 1,300 such contracts were concluded, but in practice this is not well regulated (Annual report of the Ombudswoman of the Republic of Croatia, 2021). There have been cases of contracts between only one individual providing services to tens of benefactors. Many of these contracts end up contested by the surviving family in court, making this type of transaction risky (CERANEO, 2016).

References

Bađun, M., & Krišto, J. (2021). Financial Industry Views on the Prospective Role of Long-Term Care Insurance and Reverse Mortgages in Financing Long-Term Care in Croatia. Journal of Aging and Social Policy, 33(6), 673–691. https://doi.org/10.1080/08959420.2020.1750541

Doling, J., Elsinga, M., Dol, K., Hegedüs, J., Horsewood, N., Quilgars, D., Ronald, R., Szemzo, H., Teller, N., & Toussaint, J. (2013). Demographic change and housing wealth: Homeowners, pensions and asset-based welfare in Europe. Demographic Change and Housing Wealth: Homeowners, Pensions and Asset-Based Welfare in Europe, 9789400743847, 1–161. https://doi.org/10.1007/978-94-007-4384-7

Eggers, T., Grages, C., Pfau-Effinger, B., & Och, R. (2020). Re-conceptualising the relationship between de-familialisation and familialisation and the implications for gender equality – the case of long-term care policies for older people. Ageing & Society, 40(4), 869–895. https://doi.org/10.1017/S0144686X18001435

Johnson, S. (2015). How are work requirements and environments evolving and what will be the impact of this on individuals who will reach 65 in 2025 and 2040?, UK Government office for Science

Kerbler, B., & Kolar, B. (2018). Housing for Younger and Older Populations. Housing. https://doi.org/10.5772/intechopen.78039

Kunovac, M. (2020) Distribution of household assets in Croatia, Public Sector Economics, Vol. 44 No. 3, 2020. https://doi.org/10.3326/pse.44.3.1

Lennartz, C., & Ronald, R. (2016). Asset-based Welfare and Social Investment: Competing, Compatible, or Complementary Social Policy Strategies for the New Welfare State? Asset-based Welfare and Social Investment: Competing, Compatible, or Complementary Social Policy Strategies for the New Welfare State?, Housing, Theory and Society, vol. 34, 2017 https://doi.org/10.1080/14036096.2016.1220422

Oh, F. D., & Yoon, H. (2019). The Role of Chonsei as a Price Protector in the Korean Housing Market. Https://Doi.Org/10.1080/10168737.2019.1570300, 33(1), 27–41. https://doi.org/10.1080/10168737.2019.1570300

Sendi, R., Filipovič Hrast, M., & Kerbler, B. (2019). Asset-based welfare: Is housing equity release a viable option for pensioners in Slovenia. Journal of European Social Policy, 29(4), 577–589. https://doi.org/10.1177/0958928718804930

Stephens, M., Lux, M., & Sunega, P. (2015). Post-Socialist Housing Systems in Europe: Housing Welfare Regimes by Default? Https://Doi.Org/10.1080/02673037.2015.1013090, 30(8), 1210–1234. https://doi.org/10.1080/02673037.2015.1013090

Statista. (2021). Projected global life expectancy 2100. Retrieved March 16, 2022, from https://www.statista.com/statistics/673420/projected-global-life-expectancy/

World Bank. (2021.). Life expectancy at birth, total (years). Retrieved March 16, 2022, from   https://data.worldbank.org/indicator/SP.DYN.LE00.IN

Created on 03-06-2022 | Update on 29-11-2022

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