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

Corsini, Lorenzo and Spataro, Luca (2011): Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial literacy; Choice on pension Plans; Optimal portfolio composition; Income inequality.
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving

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