This paper studies the effects of risk aversion and density of contribution (DoC) on comparisons of proportional charges on flow (contributions) and balance (assets) during the accumulation phase of a defined-contribution pension plan in a system of individual retirement accounts. If the participant's degree of risk aversion increases and both charges yield the same expected terminal wealth, then the charge on balance improves with respect to the charge on flow when performing comparisons that examine the ratio between the resulting expected utilities of terminal wealth. When this methodology is applied to the Peruvian Private Pension System, empirical results demonstrate that the aforementioned result also holds for arbitrary charges on flow and balance and that the effect of DoC on these comparisons is nearly negligible for most of the assessed scenarios.

As a result of the two severe stock market declines since 2000, there has been a steady debate about the affordability of state and local public pension benefits. We measured the affordability of pension benefits in terms of governments’ ability to make the required contributions based on existing tax and revenue bases. We conducted a historical analysis of government pension contributions at national and state level over a 20-year period 1992–2011 and found that the real pension burdens have increased over this period. We also found substantial variation in pension burdens among the 50 states. The results of our empirical analysis showed that employee contribution share, investment return, size of the public workforce, and pension benefit level had significant effects on pension burdens. Based on these findings, we proposed several strategies for reducing pension burdens, including increasing employee pension contribution, reducing size of workforce, and improving pension investment performance.

We study the complex relationship between financial literacy, retirement planning and trust in financial institutions, using data from the 2010 Bank of Italy Survey on Household Income and Wealth. The impact of financial literacy on retirement planning is a well-established issue in the existing empirical literature; our main contribution is proving that financial knowledge not only impacts retirement planning, but also the decisions of entering a private pension scheme (or devoting the severance pay to a private pension scheme). Adding the consideration of trust poses serious econometric concerns, since both financial literacy and trust in financial institutions are likely to be endogenous and the presence of two endogenous regressors renders the identification of causality very difficult. Our solution is to keep only financial literacy as endogenous and include in our models an exogenous regional indicator of social capital (similar to the one adopted by Guiso et al., 2004), as a proxy for the level of trust between the counterparts of a financial contract in each geographical area. Our main findings show that trust has a positive influence on both the decisions to enter a private pension scheme or to devote the severance pay to a private pension scheme.

Fiscal stress pressures state legislators to either raise taxes or cut spending, but public pensions provide a vehicle to postpone tax increases and maintain current spending. I estimate that states cut their pension contributions at seven times the rate of other spending in response to fiscal stress. The cumulative impact of state undercontributions due to fiscal stress explains about 4% of mid-2008 actuarial underfunding. States not paying actuarially required contributions for reasons other than fiscal stress explains an additional quarter of underfunding. As investment returns explain little underfunding, much underfunding appears due to insufficient employee and actuarially required government contributions to keep up with growing pension liabilities.

Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged asset rich households. This paper takes the perspective of the three demographically oldest European nations – France, Germany and Italy – to address three important adjustment channels to dampen these detrimental effects of aging in these countries: investing abroad, endogenous human capital formation, and increasing the retirement age. Our quantitative finding is that endogenous human capital formation in combination with an increase in the retirement age has strong implications for economic aggregates and welfare, in particular in the open economy. These adjustments reduce the maximum welfare losses of demographic change for households alive in 2010 by about 2.2 percentage points in terms of consumption equivalent variation.

Government authorities use resources on information campaigns in order to inform citizens about relevant policy changes. The motivation is usually that individuals sometimes are ill-informed about the public policies relevant for their choices. In a survey experiment where the treatment group was provided with public information material on the social security system, we assess the short- and medium-term knowledge effects. We show that the short run effects of the information on knowledge disappear completely within 4 months. The findings illustrate the limits of public information campaigns to improve knowledge about relevant policy reforms.