Unpacking the Savings Shift: Pension Reform’s Influence on Defined Contribution Plan Participants

Výzva	Štipendiá pre excelentných výskumníkov a výskumníčky R2-R4
Hlavný riešiteľ	Estera Szakadatova
Prijímateľ	Ekonomická univerzita v Bratislave
Celkový rozpočet	148 306,80 €
Príspevok poskytovateľa	148 306,80 €
Zdroj financovania	Plán obnovy a odolnosti
Začiatok realizácie	september 2024
Koniec realizácie	jún 2026
Kategória výskumníka	R2
Vedná oblasť	Spoločenské a humanitné vedy

Anotácia

The objective of this research is to build on and extend the existing knowledge in the field of behavioral finance and economics, which was initially explored during the researcher’s doctoral studies, by conducting a more comprehensive investigation into the behavior of pension savers participating in the second pension pillar in Slovakia. This research particularly pertains to the effects of major pension system reforms implemented in Slovakia in years 2003 and 2023. The pension system underwent significant reforms and changes since the year 2003. The 2003 Pension system reform introduced the investment pillar of the pension system, which revolutionized and modernized the pension system. The introduction of the investment pillar (a defined contribution pension plan) was meant to ease the pressure of the aging population on the initially one pillar, pay-as-you-go, pension system. In 2012 the pensions system underwent another reform, which entailed a shift from the previous default investment strategy to a more conservative approach of investing in conservative bond funds. However, empirical research and data analysis have revealed that a substantial portion of pension savers persisted in adhering to the default investment strategy, even a decade after this reform. During this extended period, equity markets outperformed bond markets, resulting in a notable depreciation of retirement savings, as the appreciation of bonds lagged behind the stock market. In response to recommendations from international organizations and consultations with experts, the government sanctioned a reform of the pension system in 2022, which modified the default investment strategy within the second pillar of the pension system and the re-introduced automatic enrollment into the second pillar. The new default investment strategy is based on a life-cycle-based approach tailored to individual savers. In collaboration with private pension fund companies, which manage the investments in the second pillar, this research will focus on evaluating the lessons and advantages derived from the pension system reforms that took place in Slovakia over the last 20 years, particularly with respect to the allocation of pension savers‘ investments and automatic enrollment. Additionally, it will focus on the identification and analysis of savers’ investment behavior and identification of those who opted out of the from the investment pension scheme, elucidating the behavioral biases that influenced their decision to deviate from the default strategy. The objectives of the research will be fulfilled by conducting an in-depth analysis of economic and finance theories, focusing predominantly on the field of behavioral economics and finance. These theories will enable us to better understand the functioning of the pension system, its importance as well as to better understand the behavior of pension savers. During the research, we will focus on studying pension systems of other EU member states and identify best practices that could be implemented within the Slovak context and contribute towards further improvements of the pension system to make it more resilient to the effects of aging population and pension expectations. We will complement the theoretical research with quantitative research, which will enable us to study the effects of the introduced reforms in more detail. We will use statistical and econometric methods to analyze publically available datasets, institutional data and data obtained in collaboration with private pension fund companies. We will compare and benchmark the results to existing research and studies carried out in other EU countries and internationally. In addition, to verify the reliability of the obtained results, we will use statistical and econometric methods.