DP4882 Retirement Expectations, Pension Reforms and Their Effect on Private Wealth Accumulation

Author(s): Renata Bottazzi, Tullio Jappelli, Mario Padula
Publication Date: January 2005
Keyword(s): expectations, pension reform
JEL(s): E21, H55
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4882

We estimate the effect of pension reforms on households? expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of Italian pension reforms as a source of exogenous variation in expected pension wealth. Two parameters are crucial to estimate pension wealth: the age at which workers expect to retire and the expected ratio of pension benefits to pre-retirement income. The Survey of Household Income and Wealth, a large random sample of the Italian population, elicits these expectations during a period of intense pension reforms between 1989 and 2002. These reforms had different consequences for different cohorts and employment groups, providing a quasi-experimental framework to study the effect of social security arrangements on expectations of retirement outcomes and household saving decisions. Our main findings are that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth.