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Saving with Group or Individual Personal Pension Schemes: How Much Difference Does It Make?

66 Pages Posted: 21 Feb 2017 Last revised: 20 Jul 2017

Anna Zalewska

University of Bath - Centre for Governance and Regulation; School of Management

Date Written: July 19, 2017

Abstract

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

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

Anna Zalewska (Contact Author)

University of Bath - Centre for Governance and Regulation; School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+44 0 1225 384354 (Phone)
+44 0 1226 384354 (Fax)

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