66 Pages Posted: 21 Feb 2017 Last revised: 20 Jul 2017
Date Written: July 19, 2017
In a market with frictions, investors with different exit rights and financial understanding may receive more or less attractive investment opportunities because financial intermediaries may have different incentives to develop long-term relational contracts with them. We develop a simple, partial equilibrium model to show that there are sound theoretical grounds to expect that different groups of investors may be treated differently by pension providers. Then, using a sample of 14,429 individual personal pension (IPP) funds and 1,681 group personal pension (GPP) funds offered to UK investors over the 1986-2015, we show that pension providers provide less attractive investment opportunities to the atomless IPP investors than to the GPP investors protected by bargaining power of the management/companies where they are employed. We show that GPP funds outperform IPP funds, have tougher performance benchmarks, when there is a scope for it, and are better at tracking these benchmarks. These results have important implications for investors and policy makers.
Keywords: pension funds, defined contributions, performance, benchmarks, individual investors, relational contracts
JEL Classification: G22, G23
Suggested Citation: Suggested Citation
Zalewska, Anna, Saving with Group or Individual Personal Pension Schemes: How Much Difference Does It Make? (July 19, 2017). Available at SSRN: https://ssrn.com/abstract=2920818 or http://dx.doi.org/10.2139/ssrn.2920818