The challenge of pension savings for an invisible future: Why Early Career matters

Everyday life requires us to make constant decisions, ranging from simple choices to more complex ones. Our choices are invariably influenced by factors that should have no importance and, at the same time, overlook elements that we should consider carefully. We have systematic problems with probabilistic judgments that lead us to overestimate extremely rare events and underestimate the likelihood of events that are actually highly probable; we neglect base rates and often violate the basic principles of probability theory. All these distortions or “biases” have a deep reason: they are side effects of those cognitive strategies (heuristics) that our brain has perfected over hundreds of thousands of years and that evolutionary pressure has selected to enable us to manage the enormous complexity of the environment in which we live. A practical example of this can be seen in decisions related to pension planning, at the end of their working life, investors want their portfolio to provide enough income for a good lifestyle, without stress. In principle, it is simple, but in practice it is not. To the extent that Nobel Prize-winning economist William Sharpe called it the “nastiest, hardest problem in finance.” This difficulty arises precisely from the influence of these mental biases, which make the decision even more complex to deal with. The public pension system has progressively reduced its effectiveness in maintaining the standard of living for all those who have retired from the world of work, who are increasingly more numerous than those who are part of the contributory group. Furthermore, the improvement in the quality of life has greatly extended the life expectancy of pensioners, so much so as to force the legislator to make substantial changes to the national pension system. Therefore, the real novelty in the field of social pension policies was the introduction of the Complementary Pension Funds with the Legislative Decree of no. 124 of 21 April 1993. However, despite their introduction, there has not been a widespread adoption of these funds, this low participation rate can be attributed to various behavioral biases that prevent individuals from taking actions. The aim of the following work is not to illustrate the convenience of supplementary pension funds, rather to focus on the behavioral aspect of the future member when faced with the various options of pension enrollment. To this regard, encouraging participation in complementary pension funds during the early career stage can have a significant positive effect on enrollment rates.