Workers' Choice on Pension Schemes

Abstract

The authors provide a theoretical framework to model the workers' choice problem of opting among different pension schemes, a choice problem that is common to several countries that have reformed their social security system in the last decades. This process is currently affecting private sector employees in Italy, in particular after the second pillar reform in 2007. The authors argue that workers not only have to weigh out the pros and cons that different schemes offer but that they also must consider the effect that their choice exerts on the financial structure of the firm in which they work. Once the authors have formalized this decision problem, they study analytically the properties of the adhesion process, and then carry out some simulations to replicate the Italian evidence and to shed light on the outcomes of the Italian reform.