Suspicious Minds (Can Be a Good Thing When Saving for Retirement)

Abstract

Retirement saving is an area now jam-packed with defaults meant to address delayed or absent decision making. Yet, getting individuals engaged with retirement saving decisions is critical to avoid unsuitable one-size-fits-all defaults and optimise accumulated wealth. We apply a market-segmentation approach to the problem based on two attitudinal motivators of behavioral engagement: trust and interest.Our research sheds new light on why and how engagement occurs. Engagement grows with interest, yet engagement can also be motivated by low levels of trust. However, when interest is lacking, trust is related to reducing monitoring behaviour. This increases the vulnerability of individuals to exploitation exposing the "dark side of trust" (Gargiulo and Ertug 2006).Based on this interaction of trust and interest and how it feeds into engagement, a personalised approach by pension plan providers that addresses members' diverse needs and means in terms of time, knowledge, and financial resources seems desirable.

One size fits all? Tailoring retirement plan defaults

“…Along with Beshears et al (2016), we identify who is more susceptible to defaults, less able to make active choices, and therefore less likely to opt out. We confirm the findings of Bateman et al (2014) and Deetlefs et al (2015) that procrastination is not the only cause of member passivity. Passive choice is also related to members' low subjective assessment of their own investment skill and their high trust in the plan provider.…”

“…A high level of member trust in plan providers has been associated in other studies with both high and low personal interest in retirement savings (Deetlefs et al 2015). Trust can motivate either defaulting, or active choice such as additional contributions.…”

“…Plan executives who aim to increase trust may be more likely to retain members in their plans. Trusting members are also likely to make allowances for poor plan performance (Deetlefs et al 2015). And managers who enjoy the "blind faith" of members could defraud them more easily (Singh and Sirdeshmukh 2000).…”

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

“…It has also been used to identify the attitudes of UK consumers to pension savings by Gough and Sozou (2005) who analyse 540 respondents that had made inquiries about pensions, and identify 6 groups based on age, income and DB membership. Deetlefs et al (2015) examine a sample of UniSuper members, 14 and use cluster analysis to identify groups of similar members, and then use these clusters to predict the likelihood of these groups choosing default options and levels of engagement with the pension scheme.…”

Superannuation in Australia: A Survey of the Literature

“…Secondly, 'interest' has been poorly measured. While the activities that best indicate member interest are monitoring (e.g., looking up information on fund websites) and voluntary contributions, most discussion has emphasised investment choice or choice of fund, that are more weakly related to interest (Bateman et al, 2014;Deetlefs et al, 2015). Thirdly, social influences that are not always considered by economists matter to activity and sometimes dominate instrumental factors (Croy et al, 2010(Croy et al, , 2012.…”