Flicking the Switch: Simplifying Disclosures to Improve Retirement Plan Choices

59 Pages Posted: 24 May 2016 Last revised: 22 Jan 2018

See all articles by Susan Thorp

Susan Thorp

University of Sydney Business School; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Hazel Bateman

UNSW Sydney, CEPAR

Loretti Dobrescu

University of New South Wales, School of Economics

Ben Newell

University of New South Wales (UNSW)

Andreas Ortmann

UNSW Australia Business School, School of Economics

Date Written: October 22, 2017

Abstract

Simplified disclosures can make comparisons between complex financial products easier, and increase consumer expertise. We use incentivized experiments to investigate whether and to what extent simpler information on fees and investment returns assists retirement plan members to make competent choices. We find that members switch quickly from a high-fee plan to the low-fee alternative when fees are shown in nominal dollars. Showing fees as percentages, however, significantly slows down their transition to a low-fee plan. Complex returns information makes it hard for members to recognize and react to relatively poor investment performance, while simplified information reduces losses considerably.

Keywords: fees, returns, prescribes information, financial product disclosures

JEL Classification: D81, G11

Suggested Citation

Thorp, Susan and Bateman, Hazel and Dobrescu, Loretti Isabella and Newell, Ben and Ortmann, Andreas, Flicking the Switch: Simplifying Disclosures to Improve Retirement Plan Choices (October 22, 2017). Available at SSRN: https://ssrn.com/abstract=2783113 or http://dx.doi.org/10.2139/ssrn.2783113

Susan Thorp (Contact Author)

University of Sydney Business School ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9351 6354 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Hazel Bateman

UNSW Sydney, CEPAR ( email )

High Street
Sydney, NSW 2052
Australia

Loretti Isabella Dobrescu

University of New South Wales, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Ben Newell

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Andreas Ortmann

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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