On the Asset Allocation of a Default Pension Fund (Job Talk)

Speaker
Ofer Setty*
Date
02/01/2017 - 12:30 - 11:10Add To Calendar 2017-01-02 11:10:00 2017-01-02 12:30:00 On the Asset Allocation of a Default Pension Fund (Job Talk) We characterize the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals' holdings inside and outside the pension system, we find substantial heterogeneity within and between passive and active investors in terms of labor income, financial wealth, and stock market participation. We build a life-cycle consumption-savings model with a DC pension account and an opt-out/default choice. The model produces realistic investor heterogeneity. We examine the optimal default asset allocation, which implies a welfare gain of 1.5% over a common age-based allocation. Most of the gain is attainable with a simple rule of thumb. Economics Building (Number 504). Room 011 אוניברסיטת בר-אילן - Department of Economics Economics.Dept@mail.biu.ac.il Asia/Jerusalem public
Place
Economics Building (Number 504). Room 011
Affiliation
Tel Aviv University
Abstract

We characterize the optimal default fund in a defined contribution (DC) pension plan. Using detailed data on individuals' holdings inside and outside the pension system, we find substantial heterogeneity within and between passive and active investors in terms of labor income, financial wealth, and stock market participation. We build a life-cycle consumption-savings model with a DC pension account and an opt-out/default choice. The model produces realistic investor heterogeneity. We examine the optimal default asset allocation, which implies a welfare gain of 1.5% over a common age-based allocation. Most of the gain is attainable with a simple rule of thumb.

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Last Updated Date : 29/11/2016