Defined benefit or defined contribution? A study of pension choices

Publication type

Journal Article

Authors

Publication date

June 1, 2011

Summary:

We solve an empirically parameterized life-cycle model of consumption and pension choices to show how expected earnings growth and risk affect the benefits of final-salary defined benefit (DB) pension plans, relative to pension plans that are defined contribution (DC) in nature. We use micro data on the pension choices of individuals to provide evidence consistent with the model predictions: (1) individuals who expect a higher growth rate of earnings are more likely to choose DB final-salary schemes, and (2) individuals who face a higher variance of persistent income shocks are less likely to choose DB final-salary schemes. We control for cohort and age fixed effects in the empirical analysis.

Published in

Journal of Risk and Insurance

Volume and page numbers

Volume: 78 , p.931 -960

DOI

http://dx.doi.org/10.1111/j.1539-6975.2011.01419.x

ISSN

224367

Subjects

Notes

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

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