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Implications of Behavioural Economics for Mandatory Individual Account Pension Systems

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Author Info
Waldo Tapia
Juan Yermo ()
Abstract

In individual account pension systems, members bear the risks and consequences of their investment decisions. If participants behave as predicted by economic theory, such responsibility would be welfare-enhancing as members would invest and hold a portfolio of financial assets with a risk-return combination consistent with their investment horizon, degree of risk aversion and the portfolio of other assets they hold, including their human capital and, where relevant, their home. Behavioural economists and empirical researches have shown that in reality members are not particularly good at handling their retirement savings, either because they lack the necessary cognitive ability to solve the optimization problem, because they have insufficient will power to execute it, or even sometimes because they are overconfident. This paper describes the extent to which plan members make active investment decisions in these systems and assesses the policy solutions that have been put forward to facilitate choice. The paper offers a comparative analysis of ten countries that have implemented investment choice in the accumulation stage of their individual account pension system.

Implications de l’économie des comportements pour les systèmes de pension à comptes individuels obligatoires
Dans les systèmes de pension à comptes individuels, les membres supportent les risques et les conséquences de leurs décisions d'investissement. Si les participants se comportent comme le prédit la théorie économique, le fait qu‘ils assument cette responsabilité doit améliorer leur bien-être car ils réaliseront des investissements et détiendront un portefeuille d‘actifs financiers présentant un couple risque-rendement qui sera cohérent avec leur horizon d'investissement, avec leur degré d'aversion au risque et avec les autres types d‘actifs qu'ils détiennent, notamment en termes de capital humain et, le cas échéant, d'immobilier. Les économistes du comportement et les recherches empiriques ont toutefois montré que, dans la réalité, les membres des systèmes de pension à comptes individuels ne savent pas particulièrement bien gérer leur épargne retraite, parce qu‘ils n‘ont pas les connaissances nécessaires pour résoudre le problème de l'optimisation, ou parce qu'ils n‘ont pas la volonté suffisante pour mettre en oeuvre les décisions nécessaires ou, parfois encore, parce qu'ils pèchent par excès de confiance. Dans ce document, on observe dans quelle mesure les membres des plans font des choix d'investissement actifs et on examine les mesures qui ont été prises par les pouvoirs publics pour faciliter ces choix. On procède, par ailleurs, à une analyse comparative de la situation dans dix pays qui ont introduit des possibilités de choix des investissements, durant la phase d'accumulation, dans leur système de pension à comptes individuels.

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Paper provided by OECD Directorate for Financial and Enterprise Affairs in its series OECD Working Papers on Insurance and Private Pensions with number 11.

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Date of creation: Jul 2007
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Handle: RePEc:oec:dafaab:11-en

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Keywords: pension fund fonds de pension portfolio preferences préférence de portfolio élection individuelle compte individuel alternative d'investissement plan de retraite retour d'investissement limite d'investissement individual choice individual account investment alternative pension plan investment return investment limits

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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