Readability, efficiency and costliness of individual retirement products in Poland

Abstract

Research background: The role of supplementary pension systems in providing adequate income in old-age is increasing significantly. They are frequently analysed, but rather in terms of architecture, product forms, assets under management or tax incentives than in terms of their efficiency, costliness or readability for individuals.
 Purpose of the article: The first aim of this paper is to evaluate individual retirement products in Poland regarding their linguistic readability and transparency, investment efficiency and costliness. Moreover, we examine whether there is any correlation between the analyzed characteristics of contracts that would suggest an intentional strategy by financial institutions to hide low efficiency and high costs. The second aim of the article is to assess which individual retirement products are similar to each other and which are significantly different. The research covers two types of individual retirement products (IKE and IKZE) offered at the beginning of 2017.
 Methods: We used the ?Jasnopis? linguistic analysis tool to assess the difficulty level of the language used in the contracts and we conducted desk-research to analyse their transparency. We indicated the costliness and efficiency of the products by calculating the 5-year cost ratios and real average 5-year rates of return. To examine the relations between the characteristics of pension contracts, we used the Spearman's rank correlation coefficient and then verified its significance with a non-parametric test. Moreover, to identify groups of products that are similar to or different from each other, Ward's method was used. The study includes nearly 90% of all individual retirement products offered in Poland.
 Findings & value added: For both types of retirement products studied (IKE and IKZE), we found that the more readable a contract is, the higher its rate of return is and the higher the costs charged are. Moreover, the more readable a contract is, the more transparent it is. The findings of the study provide financial institutions, the supervisor and creators of social policy with information on market imperfections and recommendations how to improve the individual retirement products offered on the market. Our research makes a unique contribution to the multidimensional research of supplementary pension systems. It also develops the understanding of how to successfully use linguistic tools in complex analyses of financial services. The results of the hierarchical cluster analysis proved that both IKE and IKZE products differ substantially and their features generally do not depend on the type of the financial provider.

Individual Pension Products Offered by Banks in Poland - a Multidimensional Comparative Analysis

“…The results support findings of Pieńkowska-Kamieniecka et al, (2021) who also examined the characteristics of individual retirement contracts in Poland but used other linguistic measures and a shorter period for efficiency assessment. But they are contrary to outcomes of the studies by Carlin (2009), Turner (2013) and Cash and Tsai (2018) who found that less readable documents are used in more costly financial services.…”

“…pension vehicles are assessed relatively rarely, and only limited studies are devoted to their profitability and readability (Rutecka-Góra et al, 2020;Pieńkowska-Kamieniecka et al, 2021).…”

“…The studies conducted focus mainly on old-age pension system architecture, coverage and assets under management. Only a few publications refer to investment efficiency (Chorkowy, 2014;Dopierała & Wojciechowski, 2015;Marcinkiewicz, 2015;Dopierała, 2017;Szczepański & Brzęczek 2016;Dopierała, 2018;Rutecka-Góra, 2019a;Rutecka-Góra et al, 2020;Pieńkowska-Kamieniecka et al, 2021) or effects of tax incentives offered in supplementary pension plans (Rutecka 2015;Rutecka-Góra 2019a;Rutecka -Góra et al, 2020). No study focuses solely on the analysis of individual retirement products offered by banks.…”

Readability and Clarity of Individual Pension Product Contracts

“…The most recent studies on readability, clarity and efficiency of individual pension products in Poland [28,35,36] proved that the difficulty level of individual pension contracts is high and the documents are unclear irrespective of the type of financial provider. However, these studies did not examine the linguistic complexity directly and used only the automatic tools of comprehensibility assessment.…”