Wharton Pension Research Council Working Papers

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Working Paper

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In view of the transition to funded individual account plans in many nations around the world, it is of interest to evaluate how the introduction of a funded defined contribution retirement system affects participants’ propensity to participate in the stock market. This chapter evaluates what we call the “Swedish experiment,” where, in 2000, the traditional Swedish pay-as-you go retirement system was partially replaced by a national defined contribution plan. Our main question is whether individuals perceive their investments in the pension scheme as a substitute for direct investments, and whether allocating more equities in their pension accounts induces participants to reduce or increase their directly-held equity investments. The results show that investors do not perceive direct investment in the equity market as a close substitute for their retirement accounts, suggesting that an individual account system does not crowd out direct equity market investment. Accordingly, the new Swedish system may actually help educate investors of the benefits of stock market participation, increasing participation and therefore, indirectly, boosting saving.


The published version of this Working Paper may be found in the 2007 publication: Redefining Retirement: How Will Boomers Fare?.

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Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2006 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


Financial support from Jan Wallander och Tom Hedelius Stiftelse is acknowledged by Andrei Simonov and Anders Karlsson. Any remaining errors are the responsibility of the authors.

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Economics Commons



Date Posted: 06 September 2019