Individual pension risk preference elicitation and collective asset allocation with heterogeneity

Gosse A.G. Alserda, Benedict Dellaert, Laurens Swinkels and Fieke S.G. van der Lecq

Journal of Banking & Finance, 2019, vol. 101, issue C, 206-225

Abstract: Collectively organized pension plans must increasingly demonstrate that the risk preferences of their members are adequately reflected in the plans’ asset allocations. However, whether funds should elicit individual members’ risk preferences to achieve this goal, or whether they can rely on other indicators, such as socio-demographics, remains unclear. To address this question, we apply a tailored augmented lottery choice method to elicit individual pension income risk preferences from 7894 members from five different pension plans. The results show that member risk preferences are strongly heterogeneous and can only partially be predicted from individual and plan characteristics. Differences in risk preference imply different optimal asset allocations. We find large welfare losses for heterogeneous members in pension plans with their current asset allocation because these allocations are safer than implied by members’ preferences. We provide a framework for pension plans to gauge the need to elicit risk preferences among their members.

Keywords: Risk preference elicitation; Composite score; Pension fund; Asset allocation (search for similar items in EconPapers)
JEL-codes: D14 G11 G23 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426619300469
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:101:y:2019:i:c:p:206-225

DOI: 10.1016/j.jbankfin.2019.02.014

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().