Grouping Individual Investment Preferences in Retirement Savings: A Cluster Analysis of a USS Members Risk Attitude Survey

Pensions Institute Discussion Paper, PI-2003, February 2020

48 Pages Posted: 16 Mar 2020

See all articles by David P. Blake

David P. Blake

City, University of London

Mel Duffield

affiliation not provided to SSRN

Ian Tonks

University of Bristol

Alistair Haig

University of Edinburgh Business School

Dean Blower

affiliation not provided to SSRN

Laura MacPhee

affiliation not provided to SSRN

Date Written: February 1, 2020

Abstract

Cluster analysis is used to identify homogeneous groups of members of USS in terms of risk attitudes. There are two distinct clusters of members in their 40s and 50s. One had previously ‘engaged’ with USS by making additional voluntary contributions. It typically had higher pay, longer tenure, less interest in ethical investing, lower risk capacity, a higher percentage of males, and a higher percentage of academics than members of the ‘disengaged’ cluster. Conditioning only on the attitude to risk responses, there are 18 clusters, with similar but not identical membership, depending on which clustering method is used. The differences in risk aversion across the 18 clusters could be explained largely by differences in the percentage of females and the percentage of couples. Risk aversion increases as the percentage of females in the cluster increases, while it reduces as the percentage of couples increases because of greater risk sharing within the household. Characteristics that other studies have found important determinants of risk attitudes, such as age, income and (pension) wealth, do not turn out to be as significant for USS members. Further, despite being on average more highly educated than the general population, USS members are marginally more risk averse than the general population, controlling for salary, although the difference is not significant.

Keywords: investment choices, cluster analysis, risk attitudes, risk capacity, defined contribution pension schemes

JEL Classification: G11, G41

Suggested Citation

Blake, David P. and Duffield, Mel and Tonks, Ian and Haig, Alistair and Blower, Dean and MacPhee, Laura, Grouping Individual Investment Preferences in Retirement Savings: A Cluster Analysis of a USS Members Risk Attitude Survey (February 1, 2020). Pensions Institute Discussion Paper, PI-2003, February 2020, Available at SSRN: https://ssrn.com/abstract=3552251 or http://dx.doi.org/10.2139/ssrn.3552251

David P. Blake (Contact Author)

City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZX
Great Britain
+44 (0) 20-7040-8600 (Phone)
+44 (0) 20-7040-8881 (Fax)

HOME PAGE: http://www.pensions-institute.org/

Mel Duffield

affiliation not provided to SSRN

Ian Tonks

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Alistair Haig

University of Edinburgh Business School ( email )

29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.business-school.ed.ac.uk/about/people/862/Alistair/Haig

Dean Blower

affiliation not provided to SSRN

Laura MacPhee

affiliation not provided to SSRN

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