Choice of pension management fees and effects on pension wealth

Noelia Bernal Lobato and Javier Olivera

No 2020-02, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

Abstract: To shed light on the effects of individual choice on pension wealth, we study a policy change to the management fees of pension funds implemented by Peru's government in 2013. The reform established a new balance fee as a default option; this fee is calculated as a percentage of the pension balance. Each individual had the initial option of keeping the previous management fee, a load factor fee calculated as a percentage of the individual's salary. We use administrative data to simulate pension balances based on the individual's choice of fee and the corresponding counterfactual. Our results indicate that the reform has been potentially adverse to 63.1 percent of individuals, of whom 41.4 percent were assigned to the default option and 21.7 percent voluntarily chose the load fee. These results reflect both the potentially negative unintended effects of the policy and an alarming lack of financial literacy among citizens. We also detect heterogeneity in the intensity of the losses and gains due to the reform, which caused greater losses than gains. In particular, younger and poorer individuals, as well as those automatically assigned to the balance fee, experienced higher losses. Moreover, the new fee scheme is also associated with increasing inequality between individuals' pension wealth.

Keywords: Pension savings; management fees; individual retirement accounts; pension reform; inequality; Peru (search for similar items in EconPapers)
JEL-codes: D31 G28 J14 J32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-03
New Economics Papers: this item is included in nep-age
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://liser.elsevierpure.com/fr/publications/cho ... ts-on-pension-wealth (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Journal Article: Choice of pension management fees and effects on pension wealth (2020)
Working Paper: Choice of pension management fees and effects on pension wealth (2019)
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:irs:cepswp:2020-02

Access Statistics for this paper

More papers in LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER) 11, Porte des Sciences, L-4366 Esch-sur-Alzette, G.-D. Luxembourg. Contact information at EDIRC.
Bibliographic data for series maintained by Library and Documentation ( this e-mail address is bad, please contact ).