Pension research: more choice does not lead to greater pension engagement
Very few people worry much about their retirement planning. At the same time, it is becoming increasingly important for everybody to be as informed as possible about their own situation. Individuals are being forced to assume an ever-greater share of responsibility for their old age. Meanwhile, research has shown that nearly 30% of Dutch households are at risk of having insufficient financial resources after retirement.
Too much choice
A lack of choice under the Dutch pension system is often cited as the reason for the low level of pension engagement among participants. In Netspar Brief 15, researchers Lisa Brüggen and Thomas Post (both of Maastricht University) demonstrate, based on a study of Swedish pension participants, that more freedom of choice does not automatically lead to greater involvement. Too much choice can even be paralyzing - certainly for people with limited financial knowledge. Sound choice architecture and limiting the number of options are essential, therefore, when offering freedom of choice.
Communication (preferably customized) can be a very effective means of increasing involvement. Interventions such as framing, the use of images, and interactive pension tools help expand individuals’ knowledge of their own pension situation. Professor Lisa Brüggen: “We have established that pension communication plays an important role in stimulating involvement. Take participants for what they are – people of flesh and blood – and not rational economic and financial know-it-alls. Knowledge of what motivates (or on the contrary holds back) people to get involved is of great importance.”
Netspar is a think-tank and knowledge network dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.