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Pension Risk, Retirement Saving and Insurance

Author

Listed:
  • Luigi Guiso
  • Tullio Jappelli
  • Mario Padula
Abstract
Using a representative sample of Italian investors, we estimate the risk associated with pension benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of social security wealth. We find substantial heterogeneity of pension risk and show that it is consistently related to observable features in the pension system that have different effects on individuals with different characteristics. We then relate subjective pension risk to individuals’ financial decisions. We find that people try to attenuate the adverse consequences of pension wealth uncertainty by increasing demand for targeted retirement saving and for insurance. Individuals facing more pension wealth risk tend to enroll more often in private pension funds, invest more in life insurance and buy more private health insurance. These effects are consistent with people becoming more risk-averse when pension wealth becomes less predictable, leading them to search for greater financial security.

Suggested Citation

  • Luigi Guiso & Tullio Jappelli & Mario Padula, 2009. "Pension Risk, Retirement Saving and Insurance," Economics Working Papers ECO2009/18, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2009/18
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    References listed on IDEAS

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    1. Bottazzi, Renata & Jappelli, Tullio & Padula, Mario, 2006. "Retirement expectations, pension reforms, and their impact on private wealth accumulation," Journal of Public Economics, Elsevier, vol. 90(12), pages 2187-2212, December.
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    5. Jappelli, Tullio & Pistaferri, Luigi, 2003. "Tax incentives and the demand for life insurance: evidence from Italy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1779-1799, August.
    6. Orazio P. Attanasio & Susann Rohwedder, 2003. "Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom," American Economic Review, American Economic Association, vol. 93(5), pages 1499-1521, December.
    7. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
    8. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    9. Richard Disney & Tanner, Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies.
    10. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-926, Sept./Oct.
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    12. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers WR-589, RAND Corporation.
    13. Jeff Dominitz & Charles F. Manski, 2006. "Measuring Pension‐benefit Expectations Probabilistically," LABOUR, CEIS, vol. 20(2), pages 201-236, June.
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    Cited by:

    1. Adeline Delavande & Susann Rohwedder, 2011. "Individuals' uncertainty about future social security benefits and portfolio choice," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 498-519, April.
    2. Luigi Ventura & Charles Yuji Horioka, 2020. "The wealth decumulation behavior of the retired elderly in Italy: the importance of bequest motives and precautionary saving," Review of Economics of the Household, Springer, vol. 18(3), pages 575-597, September.
    3. Maria De Paola & Francesca Gioia & Fabio Piluso, 2020. "Does Reminding of Behavioural Biases Increase Returns from Financial Trading? A Field Experiment," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(2), pages 1-1, February.
    4. Adeline Delavande & Susann Rohwedder, 2011. "Individuals' uncertainty about future social security benefits and portfolio choice," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 498-519, April.
    5. Ben Etheridge, 2015. "Precautionary Saving for Consecutive Income Risk," 2015 Meeting Papers 1202, Society for Economic Dynamics.
    6. van Santen, Peter & Alessie, Rob & Kalwij, Adriaan, 2012. "Probabilistic survey questions and incorrect answers: Retirement income replacement rates," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 267-280.
    7. Junya Hamaaki, 2013. "The Pension System and Household Consumption and Saving Behavior," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(4), pages 687-716, September.

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    More about this item

    Keywords

    Pension Risk; Retirement Saving; Insurance;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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