How People React to Pension Risk

41 Pages Posted: 22 May 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

Research Centre for Education and the Labour Market, Institute of Labor Economics, Netspar

Olaf Sleijpen

Department of Economics, Maastricht University, De Nederlandsche Bank

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2020

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 Grip, Andries De and Sleijpen, Olaf, How People React to Pension Risk (April 1, 2020). Melbourne Institute Working Paper No. 05/20, Available at SSRN: https://ssrn.com/abstract=3607709 or http://dx.doi.org/10.2139/ssrn.3607709

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

Research Centre for Education and the Labour Market, Institute of Labor Economics, Netspar

P.O. Box 90153
Tilburg, 5000 LE
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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