This paper investigates the effects of pension wealth on households non-pension net worth for an Italian cross-section sample, by estimating a simple life cycle model of wealth accumulation which controls for differences in permanent income across households. Both a case where future pension rights are excluded and a case in which (estimated) social security wealth is included among the explanatory variables is presented. The empirical evidence supports the prediction of a non-linear relationship between age and ratio of net worth to permanent income, and is consistent with the extended version of the life cycle theory which assumes uncertainty about length of life: our estimates of asset decumulation imply dissaving rates between 1.4% and 8.9% per year.
A rejection of the one-to-one replacement between private wealth and pension wealth is found: the implied low level of substitutability between the two forms of wealth is consistent with the view that, given the annuity market configuration, the social security legalisation and present uncertainty about future pension rights, many Italian households feel underinsured by their pensions.
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