Abstract
To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. The validated model predicts substantial social security wealth effects on retirement, with retirement decisions shaping the degree of substitution between public pension wealth and private savings. We further find important life-cycle effects of pension reforms, with households' welfare decreasing more the later in the working life they face the reform, for a given variation in pension rules. Our findings have implications for the design of future pension policies and their political sustainability.
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