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

56 Pages Posted:  

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: July 4, 2018

Abstract

We analyze experiences of savers 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 savers, we find that the average saver feels unknowledgeable about the scheme and experiences choice overload. Pension savers with a high degree of choice overload are likely to be influenced in their investment decisions by peers and advisors. Low knowledgeable and risk-averse savers tend to invest in the default fund – a fund that is, however, one of the most risky funds. On top of this mismatch between savers’ risk-aversion and investment choices we also find that risk-averse savers and savers with low subjective knowledge are more likely to feel pessimistic about their future financial well-being. Those who appreciate choice in pensions are more optimistic. However, the actual act of choosing has barely an effect on the perception of financial well-being. Interestingly, most pension savers do not tend to remember the funds they chose, but rather the fund provider, which they paradoxically consider as the least important decision criterion to make a fund choice. Based on our results we derive suggestions for reforming 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 (July 4, 2018). Available at SSRN: https://ssrn.com/abstract=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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