Effects of private pensions on household wealth and financial portfolios.

Over the past decades, there have been significant changes in the structure of private pension provision. Since the 1980s, increasing number of employers has moved away from the provision of defined benefit (DB) plans to defined contribution (DC) plans. The retirement outcome of DC pension holders is therefore dependent on the level of contribution made to the plan and, more importantly, participants are now responsible in making their own investment decisions. Such features of the DC plans contribute to an element of risk and uncertainty of retirement outcomes. In comparison, under a DB plan, the employer bears all investment risks and is obligated to provide the promised retirement benefits to eligible employees. This paper investigates the effects of private pensions on household wealth and financial portfolio across U.S. households. Using data from the 2007 Survey of Consumer Finances (SCF), it is evident that private pension holders tend to be wealthier than households without private pension, but net worth does not vary substantially among holders. Furthermore, it is justifiable that the proliferation of DC plans has indeed encouraged higher participation in the stock market. However, private pension status is found to have minimal effect on portfolio shares invested in stocks due to anomalies in household behaviour.Bachelor of Art