Pension Plans and Retirement Insecurity
Why do we observe higher and higher retirement insecurity over the years? This paper argues that an individual’s retirement insecurity hinges on the interplay between her registered pension scheme and the level of market volatility. A pension scheme reflects the extent to which pension investment risk is individualized, providing the seed for retirement insecurity. The fear for retirement was triggered as capital markets became more volatile over the past decade. Market volatility creates an immediate information shortcut for individuals when forming expectations about post-retirement income that will only be realized in the long run. Due to the “available information bias,” citizens have developed overall downward expectations of retirement income under growing market volatility, forming pessimistic perceptions about retirement. This pessimism is more striking among those with a Defined Contribution pension scheme than those with a Defined Benefit plan because of the risk individualization feature. The argument is tested with data from the British Household Panel Survey (BHPS). The findings suggest that individuals’ perceptions of insecurity in post-working life are driven by the type of pension plan in which they are enrolled and the degree of market fluctuation facing them.
KeywordsOld-age security Market volatility Welfare state Public pension United Kingdom Economic insecurity Retirement insecurity; BHPS
Compliance with Ethical Standards
Conflict of Interest
Wei-Ting Yen declares that she has no conflict of interest.
Informed content was obtained from individual participants included in the study.
Ethical Treatment of Experimental Subjects (Animal and Human)
This article does not contain any studies with human participants or animals performed by the author.
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