 Defined benefit or defined contribution?: An empirical study of pension choicesJoao F. Cocco and Paula Lopes LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: We empirically study individual pension choice between two different defined benefit (DB) plans and a defined contribution (DC) plan. The DB plans differ in their contribution rates and in the way retirement benefits are calculated, as a proportion of final salary or as a proportion of lifetime earnings. We relate labor income characteristics to the choice of pension plan. Among other determinants of pension choice, we find that: (i) individuals who face higher income growth are more likely to choose DB final salary plans, and less likely to choose the DC plan; (ii) individuals who face higher earnings volatility are less likely to choose DB final salary plans; (iii) individuals with higher earnings are more likely to choose either the DC or the DB final salary plan. These results constitute evidence of self selection of individuals into different pension plans, an important issue for pension fund providers and for those involved in pension reform. JEL-codes: G23 H55 J32 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24751 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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