Severance Pay or Pension Funds?
AbstractThe paper aims to analyze the determinants of the individual choice of con- tributing to pension funds, particularly by focusing on individual preferences towards the annuitization of the accumulated pension capital. The analysis is performed in the light of the latest reform of social security in Italy, convert- ing the severance pay scheme (the so-called TFR) into a fully funded scheme of pension funds. The model describes the behavior of a representative agent belonging to a representative generation in steady state, in a partial equilibrium setting with mortality risk as well as uncertainty on wages and financial market returns. Investing in riskier but potentially more rewarding pension funds, paying out annuities from retirement onwards, turns out to be slightly welfare improving with respect to contributing to a severance pay scheme eventually paying out a lump-sum amount. Nonetheless, the welfare-based value of insurance provided by private annuities from pension funds is relatively low, mainly due to a) the pre-existence of (sizeable) public annuities, and b) constraints imposed by annuitization on both saving and consumption behavior after retirement. These findings provide further insights into the Òannuity puzzleÓ issue.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0139.
Length: 39 pages
Date of creation: Oct 2011
Date of revision:
Social Security Reforms; Uncertainty; Fully Funded Pension Schemes.;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-11-07 (Economics of Ageing)
- NEP-ALL-2011-11-07 (All new papers)
- NEP-DGE-2011-11-07 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raquel Fonseca & Theptida Sopraseuth, 2005.
"Welfare Effects of Social Security Reforms across Europe: the Case of France and Italy,"
Documents de recherche
05-08, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
- Raquel Fonseca & Thepthida Sopraseuth, 2005. "Welfare Effects of Social Security Reforms Across Europe : the Case of France and Italy," CSEF Working Papers 138, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Raquel Fonseca & Thepthida Sopraseuth, 2006. "Welfare Effects of Social Security Reforms Across Europe: The Case of France and Italy," Working Papers 437, RAND Corporation Publications Department.
- Luigi Ventura, 2003. "Direct Measures of Time Preference," The Economic and Social Review, Economic and Social Studies, vol. 34(3), pages 293â310.
- Raffaele Miniaci & Chiara Monfardini & Guglielmo Weber, 2010. "How does consumption change upon retirement?," Empirical Economics, Springer, vol. 38(2), pages 257-280, April.
- Giovanni Guazzarotti & Pietro Tommasino, 2008. "The Annuity Market in an Evolving Pension System: Lessons from Italy," CeRP Working Papers 77, Center for Research on Pensions and Welfare Policies, Turin (Italy).
- Riccardo Cesari & Giuseppe Grandi & Fabio Panetta, 2008.
"Supplementary Pension Schemes in Italy: Features,Development and Opportunities for Workers,"
Giornale degli Economisti,
GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 67(1), pages 21-73, March.
- Riccardo Cesari & Giuseppe Grande & Fabio Panetta, 2007. "Supplementary pension schemes in Italy: features, development and opportunities for workers," Questioni di Economia e Finanza (Occasional Papers) 8, Bank of Italy, Economic Research and International Relations Area.
- Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2008.
"The retirement consumption puzzle: evidence from a regression discontinuity approach,"
IFS Working Papers
W08/05, Institute for Fiscal Studies.
- Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2009. "The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach," American Economic Review, American Economic Association, vol. 99(5), pages 2209-26, December.
- Agar Brugiavini & Erich Battistin, & Enrico Rettore & Guglielmo Weber, 2007. "The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach," Working Papers 2007_27, Department of Economics, University of Venice "Ca' Foscari".
- Jeffrey R. Brown & Mark J. Warshawsky, 2001. "Longevity-Insured Retirement Distributions from Pension Plans: Market and Regulatory Issues," NBER Working Papers 8064, National Bureau of Economic Research, Inc.
- Butler, Monika & Teppa, Federica, 2007.
"The choice between an annuity and a lump sum: Results from Swiss pension funds,"
Journal of Public Economics,
Elsevier, vol. 91(10), pages 1944-1966, November.
- Monika Bütler & Federica Teppa, 2007. "The choice between an annuity and a lump sum: Results from Swiss pension funds," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1944-1966 National Bureau of Economic Research, Inc.
- Benjamin M. Friedman & Mark Warshawsky, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
- Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabio Maria Manenti).
If references are entirely missing, you can add them using this form.