Abstract
AbstractThe revealed preference for dominated insurance-based personal pension plans (PPPs) in Italy is a decade-long puzzle. I surmise that a motivation from the supply side is a sales force factor deriving from the geographical distribution of financial providers, including the countrywide network of the state controlled Post Office. I provide supporting evidence using three biennial waves of the Bank of Italy's survey on household finances from 2010 to 2014. The time interval includes a public pension system reform sharply raising the statutory age retirement, legislated in December 2011 to defuse a sovereign debt crisis. I show that the salience effect on the awareness of the benefits of supplementing lower perspective public pensions with PPPs increased the explanatory power of financial strength indicators. Exploiting a module in the 2010 wave I estimate a surprising decrease in the probability of subscription to PPPs in 2014 associated with the indicator for the highest financial literacy level.
Highlights
The preference for the dominated alternative between two types of personal pension plans (PPPs) is a decade-long puzzle in the Italian private pension system, which includes occupational schemes (Fondi pensioni chiusi or FPNs); for a recent overview see Ricci and Caratelli (2017).“New” Personal Investment Plans (PIPs), a type of PPPs introduced in 2007 and sold only by insurance companies, are much more widely subscribed than the alternative open pension funds (FPAs), offered by insurance companies as well as by banks and bank controlled management saving companies
This paper has investigated the reasons behind the preference of Italian workers for the dominated alternative of personal pension plans, i.e. insurance-based PIPs instead of open funds FPAs
I contribute to this literature by adding the factor of the geographical distribution of providers tilted towards the dominated instrument
Summary
The preference for the dominated alternative between two types of personal pension plans (PPPs) is a decade-long puzzle in the Italian private pension system, which includes occupational schemes (Fondi pensioni chiusi or FPNs); for a recent overview see Ricci and Caratelli (2017). PIPs are an insurance-based product, with individual subscriptions, marketed only by insurance companies, though possibly controlled by banking groups, and by their financial agents. The market structure for FPAs, with both individual and collective subscriptions for private employees and access that can be linked to employment and professional activities, is instead open to the competition among various financial providers: private insurance companies (with a market share larger than a half), bank controlled management saving companies (about two fifths of the market) and banks (only Intesa San Paolo, as of 2017). There is evidence of a strong and persistent explanatory power of the sales force factor, whereby the probability of preferring PIPs to FPAs, conditional on the participation to the personal pension plans market, is negatively correlated to the size of the city where respondent household heads reside.
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