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Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities

  • Corsini, Lorenzo
  • Spataro, Luca

Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper we provide a model describing workers’ choices on the allocation of retirement savings in presence of a) mandatory contribution; b) portfolio decision; c) financial literacy costs. In particular, we characterise the results both from a positive and normative standpoint, by highlighting the determinants of the individual’s choice, with special focus on financial literacy costs and wage level inequalities and by characterizing the optimal contribution rate to mandatory complementary pension schemes.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30946.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:30946
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  1. Sita Nataraj & John B. Shoven, 2003. "Comparing the Risks of Social Security with and without Individual Accounts," American Economic Review, American Economic Association, vol. 93(2), pages 348-353, May.
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  3. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy and retirement planning in the United States," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 509-525, October.
  4. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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  7. Creedy, John, 1994. "Two-Tier State Pensions: Labour Supply and Income Distribution," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(2), pages 167-83, June.
  8. Elsa Fornero & Chiara Monticone, 2011. "Financial Literacy and Pension Plan Participation in Italy," CeRP Working Papers 111, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  9. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
  10. Raimond Maurer & Olivia S. Mitchell & Ralph Rogalla, 2010. "The Effect of Uncertain Labor Income and Social Security on Life-cycle Portfolios," NBER Working Papers 15682, National Bureau of Economic Research, Inc.
  11. Jappelli, Tullio & Padula, Mario, 2011. "Investment in financial literacy and saving decisions," CFS Working Paper Series 2011/07, Center for Financial Studies (CFS).
  12. D'Amato, Marcello & Galasso, Vincenzo, 2010. "Political intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 628-637, October.
  13. Gabrielle Demange, 2009. "On Sustainable Pay-as-You-Go Contribution Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 493-527, 08.
  14. Mary Benedict & Kathryn Shaw, 1995. "The impact of pension benefits on the distribution of earned income," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(4), pages 740-757, July.
  15. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  16. Oecd, 2005. "Improving Financial Literacy: Analysis of Issues and Policies," Financial Market Trends, OECD Publishing, vol. 2005(2), pages 111-123.
  17. Vincenzo Galasso, 2006. "The Political Future of Social Security in Aging Societies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072734, June.
  18. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
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