How People React to Pension Risk
41 Pages Posted: 22 May 2020
Date Written: April 1, 2020
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: Suggested Citation