Well-Appreciated but (Too) Difficult Pensions Choices? Insights from the Swedish Premium Pension System
37 Pages Posted: 25 Jul 2018 Last revised: 13 Dec 2018
Date Written: December 12, 2018
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: Suggested Citation