Using a representative sample of Italian investors, we estimate the risk associated with pension benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of social security wealth. We find substantial heterogeneity of pension risk and show that it is consistently related to observable features in the pension system that have different effects on individuals with different characteristics. We then relate subjective pension risk to individuals’ financial decisions. We find that people try to attenuate the adverse consequences of pension wealth uncertainty by increasing demand for targeted retirement saving and for insurance. Individuals facing more pension wealth risk tend to enroll more often in private pension funds, invest more in life insurance and buy more private health insurance. These effects are consistent with people becoming more risk-averse when pension wealth becomes less predictable, leading them to search for greater financial security.
