How individuals react to defined benefit pension risk
AbstractWe develop a measure of hybrid defined benefit DB pension risk and show how this pension risk affects individual portfolio decisions. We find that people in riskier DB plans are, on average, not only less likely to hold equity but also hold a smaller share of their wealth in equity. This relation is stronger for people who are better informed about their pension plan risk, and for retirees. We also check whether pension risk is related to retirement decisions but find no evidence to support this hypothesis. Our main results are robust to a number of model specifications and alternative explanations. Our findings suggest that properly funded DB pension plans can increase participants welfare by allowing them to seek higher returns in their individual portfolios while at the same time relieving less sophisticated participants from the decisions required by a defined contribution plan.
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Bibliographic InfoPaper provided by Maastricht : GSBE, Graduate School of Business and Economics in its series Research Memorandum with number 046.
Date of creation: 2013
Date of revision:
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
Personal Finance; Portfolio Choice; Investment Decisions;
Other versions of this item:
- Salamanca N. & Sleijpen O.C.H.M. & Grip A. de, 2013. "How individuals react to defined benefit pension risk," Research Memorandum 046, Maastricht University, Graduate School of Business and Economics (GSBE).
- Salamanca N. & Grip A. de & Sleijpen O.C.H.M., 2013. "How individuals react to defined benefit pension risk," ROA Research Memorandum 015, Maastricht University, Research Centre for Education and the Labour Market (ROA).
- Salamanca N. & Grip A. de & Sleijpen O.C.H.M., 2013. "How individuals react to defined benefit pension risk," Research Memoranda 015, Maastricht : ROA, Research Centre for Education and the Labour Market.
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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