On the Asset Allocation of a Default Pension Fund

Roine Vestman, Ofer Setty and Magnus Dahlquist
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Magnus Dahlquist: Stockholm School of Economics

No 255, 2017 Meeting Papers from Society for Economic Dynamics

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.

Date: 2017
New Economics Papers: this item is included in nep-age and nep-dge
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Related works:
Journal Article: On the Asset Allocation of a Default Pension Fund (2018)
Working Paper: On the Asset Allocation of a Default Pension Fund (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:255

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