How People React to Pension Risk

42 Pages Posted: 26 Jun 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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Date Written: April 19, 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

Suggested Citation

Salamanca, Nicolas and de Grip, Andries and Sleijpen, Olaf, How People React to Pension Risk (April 19, 2020). Life Course Centre Working Paper No. 2020-07, Available at SSRN: https://ssrn.com/abstract=3632078 or http://dx.doi.org/10.2139/ssrn.3632078

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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