Abstract
We examine the behavior of members of an industry-wide pension fund to assess both the prevalence of defaults and their impact on retirement savings. Our empirical investigations show that preferences, demographic characteristics and labor mobility matter greatly when it comes to the low active plan choice (or high defaulting) and overall level of pension bene ts. Using a structural dynamic life-cycle model, we then evaluate the ability of these empirically motivated factors to explain retirement savings patterns. In our model, individuals decide how much to save in a setting that combines an irreversible automatic enrolment with an active decision regime. After automatic enrolment, there is an initial choice between two pension plans (de fined benefi t vs. defi ned contribution), and then members decide (possibly by default) their voluntary contributions and type of investment allocation. We estimate the model using the simulated method of moments on administrative data from a large Australian pension fund. Our results show that default settings strongly influence wealth accumulation. Such settings are also highly persistent, both over time and across decisions. Overall, our findings suggest that if defaults (particularly the irreversible ones) are not carefully designed, retirement savings can be severely a ffected.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
