Appreciated but Complicated Pension Choices? Insights from the Swedish Premium Pension System
36 Pages Posted: 25 Jul 2018 Last revised: 30 Jan 2019
Date Written: January 22, 2019
We analyze experiences of members in a DC pension scheme from Sweden, one of the first countries that launched 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. Regarding choice behavior, we find that members who are more risk-averse and report low levels of subjective knowledge tend to invest in the default fund – a fund that is, however, one of the riskiest on the choice menu. On top of this mismatch between members’ risk preferences and their 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. We also see a strong and positive correlation between financial well-being and choice appreciation, whereas the act of choosing the fund has only minor 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