The Home, Pension Savings, and Risk Aversion : Intentions of Defined Contribution Pension Scheme Participants in a London-based Investment Bank at the Peak of the Bubble

In the lead-up to the peak of the financial bubble (and before the onset of the global financial crisis), UK newspapers regularly touted property including owner-occupied homes as ready-made alternatives to private pensions. Having previously considered the significance of investment property (buy-to-let etc), in this paper we explore the significance of home ownership for respondents' intended retirement savings strategies. Based upon a unique May 2007 survey of over 2,400 participants in a defined contribution pension plan offered by a leading investment bank located in London, we assess the statistical significance of various indicators of respondents' socio-economic status and measures of risk preference in predicting their response to a question that sought to elicit their opinion about the significance or otherwise of their home for retirement saving. Relatively few respondents from the bank indicated that they were likely to rely on their home for retirement planning and saving. Those that indicated reliance were relatively older, higher paid, and married employees. Of the various ways in which we sought to test the significance of risk aversion in predicting a positive response to the question, the simplest measure of risk preference dominated other measures including those that represent Kahneman and Tversky's prospect theory. The paper concludes with implications for understanding the connection between savings behaviour and housing before and after the global financial crisis