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Pension Risk, Retirement Saving And Insurance

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Executive Summary

Using a representative sample of Italian investors, the authors estimate the risk associated with pension benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of social security wealth. They find substantial heterogeneity of pension risk and show that it is consistently related to observable features in the pension system that has different effects on individuals with different characteristics. They then relate subjective pension risk to individuals' financial decisions. They find that people try to attenuate the adverse consequences of pension wealth uncertainty by increasing demand for targeted retirement saving and for insurance.

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