The Route to Take‐up: Evidence from the UK Pension Credit Reform
| Date | 01 October 2015 |
| DOI | http://doi.org/10.1111/obes.12080 |
| Published date | 01 October 2015 |
| Author | Francesca Zantomio |
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©2014 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 77, 5 (2015) 0305–9049
doi: 10.1111/obes.12080
The Route to Take-up: Evidence from the UK Pension
Credit Reform*
Francesca Zantomio†
†Department of Economics, Ca’ Foscari University of Venice, S. Giobbe 873, 30121, Venice,
Italy (e-mail: francesca.zantomio@unive.it)
Abstract
Viable routes to increase the take-up of cash transfer programs include raising the finan-
cial incentive to claim and reducing claiming barriers. Older people’s response to both is
evaluated exploiting the introduction of Pension Credit in the UK. The reform involved
improved application assistance, simplified claiming procedure, extended recertification
interval, less intrusive reporting requirements and outreach campaigning; also, the cash en-
titlement was increased for a subgroup of pensioners. The behavioralresponse is identified
using Family Resources Survey data. Results support the effectiveness of financial incen-
tives, whileno effect is found in the case of reducing bar riers policies whenunaccompanied
by financial incentives.
I. Introduction
Empirical evidence suggests that non participation in means-tested schemes represents a
structural feature of cash transfer programs. The proportion of eligible individuals missing
out their entitlement, estimated for a variety of programs in several developed countries,
ranges from about 10% to about 80% (Currie, 2004; Hernanz, Malherbet and Pellizzari,
2004). If a higher level of income could be achieved at no additional cost, a rational
individual should take it up. The puzzling evidence of non take-up has therefore been
explained referring to lack of information and the presence of unobserved costs which
reduce the utility of the additional cash attainable through a claim. Besides the theoretical
*The author has benefited from the helpful comments of two anonymous referees, as well as of Stephen Pudney,
Ruth Hancock, Holly Sutherland, Richard Berthoud, Thomas Siedler, Olmo Silva, Lara Tavares, Bruno Arpino,
Emilia Del Bono, Erich Battistin, Peter Mueser, Mike Brewer, DavidBell and participants at the European Society
for Population Economic Conference, the ZEW Workshop on Evaluation of Policies fighting Social Exclusion, the
International Microsimulation Association Conference, the Essex Microsimulation Workshop, the ZEW Conference
on Evaluation Research, the Italian Congress of Econometrics and Empirical Economics, and at seminars held at the
Institute for Social and Economic Research (University of Essex), the DIW Berlin, the Centre for the Analysis of
Social Exclusion (London School of Economics) and the Department for Workand Pensions, where earlier versions
of this paper were presented. All responsibility for the analysisand inter pretation of the results lies with the author.
Material from the Family Resources Survey,made available by the Department for Work and Pensions,the National
Centre for Social Research and the Office for National Statistics (Social and Vital Statistics Division) via the UK
Data Archive, has been used with permission.
JEL Classification numbers: C14, C21, C25, H53, H31, I38
720 Bulletin
interest in a seemingly irrational behavior, non take-up represents a highly relevant policy
issue.1While targeted schemes are regarded as the cost efficient way of delivering social
assistance, their success relies crucially on the incidence of non take-up, which might
hamper their anti-poverty effectivenessand generate disparities between entitled recipients
and non recipients.
Devising successful ways of increasing take-up requires identifying to which levers in-
dividuals’ claiming behavior responds. Since Moffitt’s (1983) seminal model, economists
have represented take-up as an optimizing choice where individuals compare the expected
utility from the financial gain that take-up entails with the disutility inherent in claiming
(due to stigma, transaction costs and the cost of acquiring information). Take-up occurs
when the expected benefit from the additional financial resources outweighs the non mon-
etary claiming costs (e.g. the time to be spent gathering documentation, filling in the
application form, visiting offices, the hassle of dealing with the administrative procedure,
the psychological cost arising from feelings of welfare dependence). Economic theory
therefore suggests two possible routes to trigger take-up. A first route is raising financial
incentives to claiming by setting higher entitlement levels. A second route is reducing
barriers (e.g. the non monetary costs) to claiming through administrative and outreach
initiatives. Compared with the first route, reducing barriers represents an attractive option;
it might bear lighter long-term implications for fiscal balances and would not worsen the
poverty trap inherent in means-tested programs as raising financial incentives could.
From an empirical point of view, the existence of a positiveassociation between the ex-
pected benefit amount and take-up has emerged consistently in previousstudies. Most have
obtained the result exploiting the cross-sectional variation of entitlement levels across the
eligible population (Warlick, 1982; Ashenfelter, 1983; Moffitt, 1983; Halpern and Haus-
man, 1986; McGarry, 1996). A few have gone further towards causality by exploiting
exogenous changes in program parameters to identify a positive entitlement elasticity of
take-up behavior (Anderson and Meyer, 1997; Dahan and Nisan, 2010; Zantomio, Pudney
and Hancock, 2010). On the other hand, very little is known about individuals’ respon-
siveness to policies aimed at reducing claiming barriers.2The evidence produced so far
1Economic research on non take-up was developed mainlyin the US and the UK (see Cur rie, 2004, for a review),
where a substantial component of the social security system relies on means-testing, but is also growing in other
OECD countries (Hernanz et al., 2004). Studies have focused on measuring take-up rates across different programs
and population subgroups, on investigating which personal or program characteristics are related to claiming and on
trying to identify which claiming barriers explain non take-up behavior.
2Further research on the subject has been advocated by several authors. Most of the literature so far has focused
on assessing the relative importance of different types of barriers, but the evidence produced is quite mixed and
results often maintain a suggestive tone. Some studies have stressed the role playedby information costs. Perceived
ineligibility for example wasfound to be a major determinant of non take-up (Coe, 1979; Daponte, Sanders and Taylor,
1999). Dahan and Nisan (2006) found that longer exposure to the incentiveto find infor mation significantlyincreased
take-up probability in the contextof a non means-tested water price benefit in Israel. The low take-up probability found
for residents of small cities (Bramley, Lancaster and Gordon, 2000), and the high one for individualsalready receiving
welfare (Dorsett and Heady, 1991; Blundell, Fry and Walker, 1988; Zedlewski and Brauner, 1999) might also be
considered as indirect evidence of the role played by information. However, they could also be due to differences
in administrative costs, potentially higher in rural areas (Warlick, 1982; Edmonds, 2002) and lower for recipients
already accustomed to benefit administration (Blundell et al., 1988). The potential relevanceof administration costs
(Blank and Ruggles, 1996; Koning and Ridder, 1997) is reinforced also by the finding that uncertainty as to the
outcome of a claim discourages take-up (Halpern and Hausman, 1986). Instead, the evidence of lower take-up by
more socially activeindividuals and pensioners, regarded as more adverse to government handouts (Kayser and Frick,
2000; Andrade, 2002), has been related to the presence of stigma barriers.
©2014 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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