Well-Appreciated but (Too) Difficult Pensions Choices? Insights from the Swedish Premium Pension System

37 Pages Posted: 25 Jul 2018 Last revised: 6 Nov 2018

See all articles by Monika Böhnke

Monika Böhnke

Maastricht University - Department of Marketing

Elisabeth Brüggen

Maastricht University

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Date Written: November 5, 2018

Abstract

We analyze experiences of members in a DC pension scheme from Sweden – a country that was among the first to launch choice-based funded individual pension accounts. Based on a survey among 2,646 members, we study the effect of choice overload, risk tolerance, and subjective knowledge on self-reported choice behavior and perceptions of financial well-being. Concerning choice behavior, we find that more risk averse members and those that report low levels of subjective knowledge tend to invest in the default fund – a fund that is, however, one of the riskiest funds on the choice menu. On top of this mismatch between members’ risk preferences and investment choices we also find that risk averse members and members with low subjective knowledge are more likely to feel negative about their future financial well-being. Besides, we see a strong and positive correlation between financial well-being and choice appreciation, whereas the act of choosing the fund has just a small impact. Based on our results, we derive suggestions for adjusting the choice architecture in choice-based pension schemes.

Keywords: Pensions, Choice, Financial Well-Being

JEL Classification: D14, D83, D91

Suggested Citation

Böhnke, Monika and Brüggen, Elisabeth and Post, Thomas, Well-Appreciated but (Too) Difficult Pensions Choices? Insights from the Swedish Premium Pension System (November 5, 2018). Available at SSRN: https://ssrn.com/abstract=3208077 or http://dx.doi.org/10.2139/ssrn.3208077

Monika Böhnke

Maastricht University - Department of Marketing ( email )

Maastricht NL, 6200 MD
Netherlands

Elisabeth Brüggen

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Thomas Post (Contact Author)

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

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