How People React to Pension Risk

40 Pages Posted: 30 Mar 2020

See all articles by Nicolas Salamanca

Nicolas Salamanca

Melbourne Institute: Applied Economic & Social Research, the University of Melbourne; IZA; University of Melbourne - ARC Centre of Excellence for Children and Families over the Life Course

Andries de Grip

Maastricht University

Olaf Sleijpen

Department of Economics, Maastricht University, De Nederlandsche Bank

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Abstract

We show that people exposed to greater pension risk are less likely to invest in risky assets. We exploit a reform that links people's future pension benefits to their pension funds' funding ratio—a measure of the fund's financial health—making funding ratios a fund-specific measure of pension risk. The effect of pension risk is stronger for people who are better informed about their pensions, for retirees and pension-age non-retirees, and for wealthier people. The funding ratio does not affect investments in a pre-reform period, nor does it affect bequest intentions, (expected) retirement, or the motivations for saving.

Keywords: individual portfolio choice, background risk, retirement planning, pension reform, The Netherlands

JEL Classification: D14, J22

Suggested Citation

Salamanca, Nicolas and de Grip, Andries and Sleijpen, Olaf, How People React to Pension Risk. IZA Discussion Paper No. 13077, Available at SSRN: https://ssrn.com/abstract=3562867

Nicolas Salamanca (Contact Author)

Melbourne Institute: Applied Economic & Social Research, the University of Melbourne ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Melbourne - ARC Centre of Excellence for Children and Families over the Life Course ( email )

Andries De Grip

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Olaf Sleijpen

Department of Economics, Maastricht University, De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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