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Learning from the Chilean Experience: The Determinants of Pension Switching

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Author Info

  • David Bravo Urrutia
  • Olivia S. Mitchell
  • Petra Todd

Abstract

Competition across money managers, along with market entry, in theory could ensure that capital market remains competitive. But in Chile, which has had a privatized pension system for 25 years, high rates of switching between the funds and little downward movement on fees, have been interpreted as evidence of market inefficiency. This chapter uses a change in the regulatory rules governing the marketing of AFP pensions (Administradoras de Fondos de Pensiones) in Chile to investigate the empirical basis for sources of market frictions. We find that switching patterns are on a par with trading in US 401(k) accounts, and further, that switchers tend to be highly educated and relatively more highly paid. Switching is also more common among those with higher levels of financial literacy. The 1997 regulatory change appears to have reduced switching, particularly among the better educated.

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Bibliographic Info

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp266.

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Date of creation: Aug 2007
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Handle: RePEc:udc:wpaper:wp266

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Web page: http://www.econ.uchile.cl/
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Related research

Keywords: Pension; AFP; Chilean labor market.;

References

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  1. Annamaria Lusardi & Olivia S. Mitchell, 2011. "Financial Literacy and Planning: Implications for Retirement Wellbeing," NBER Working Papers 17078, National Bureau of Economic Research, Inc.
  2. Rodrigo Cerda, 2006. "Movilidad en la Cartera de Cotizantes por AFP: La Importancia de ser Primero en Rentabilidad," Documentos de Trabajo 309, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Alberto Arenas de Mesa & David Bravo & Jere R. Behrman & Olivia S. Mitchell & Petra E. Todd, 2006. "The Chilean Pension Reform Turns 25: Lessons From the Social Protection Survey," NBER Working Papers 12401, National Bureau of Economic Research, Inc.
  4. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," CeRP Working Papers 54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  5. Alberto Arenas de Mesa & Jere Behrman & David Bravo, 2001. "Characteristics of and determinants of the density of contributions in a Private Social Security System," Working Papers wp077, University of Michigan, Michigan Retirement Research Center.
  6. Solange Berstein & Carolina Cabrita, 2006. "Los Determinantes de la Elección de AFP en Chile: Nueva Evidencia a Partir de Datos Individuales," Working Papers 19, Superintendencia de Pensiones, revised Jul 2007.
  7. Solange Berstein & Alejandro Micco, 2002. "Turnover and Regulation: The Chilean Pension Fund Industry," Working Papers Central Bank of Chile 180, Central Bank of Chile.
  8. Iván Marinovic & Salvador Valdés, 2010. "La demanda de las AFP chilenas: 1993-2002," Documentos de Trabajo 369, Instituto de Economia. Pontificia Universidad Católica de Chile..
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Citations

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Cited by:
  1. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2009. "Financial Literacy and Financial Sophistication Among Older Americans," NBER Working Papers 15469, National Bureau of Economic Research, Inc.
  2. Jere R. Behrman & Olivia S. Mitchell & Cindy Soo & David Bravo, 2010. "Financial Literacy, Schooling, and Wealth Accumulation," NBER Working Papers 16452, National Bureau of Economic Research, Inc.
  3. Justine S. Hastings & Olivia S. Mitchell, 2011. "How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors," NBER Working Papers 16740, National Bureau of Economic Research, Inc.
  4. Lusardi, Annamaria & Mitchell, Olivia S. & Curto, Vilsa, 2012. "Financial sophistication in the older population," CFS Working Paper Series 2012/08, Center for Financial Studies (CFS).

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