Abstract: Pension plan members are confronted with an array of decisions prior to retirement. These choices encompass considerations such as the timing of retirement, the potential withdrawal of a lump-sum amount, and the preference for a fixed or variable payout structure. Often, these decisions are irrevocable and shape the retirement income for one's lifetime. Thus, it is imperative that pension plan participants make well-informed choices congruent with their personal situation and preferences. As of July 1, 2023, Dutch pension providers are legally mandated to assist plan members in the Netherlands in navigating decisions concerning retirement dates and drawdown methods.
Technological solutions, such as online decision support tools, provide personalized decision support that is available 24/7. Understandably, many pension providers view these tools as a promising avenue to offer personalized and efficient assistance to a large number of participants. However, pension-related choices entail significant complexity, and participants often lack the financial and digital literacy to proficiently engage with such online tools and grasp the pertinent trade-offs linked to various alternatives. Consequently, the central research question centers on whether online decision support tools suffice to support pension plan participants in the choices they have to make.
This study investigates decision-making among pension plan participants in the Netherlands regarding four different drawdown choices. A field experiment involving 98 participants nearing retirement was conducted. Participants were randomly assigned to one of three conditions: (1) Independent use of an online tool, (2) Group session using the tool with facilitators, and (3) 1-on-1 session with a financial advisor guiding tool usage. The study assesses participants' choices, decision comfort, understanding, perceived value of the sessions, and self-assessment of expertise. Results show that more intensive guidance leads to better understanding of retirement choices and a more conscious decision-making process, and was perceived as more valuable. Interestingly, participants who received additional guidance rated their expertise lower, indicating a more realistic perception of their knowledge. The study underscores the significant demand for choice guidance and suggests that participants benefit from personalized support, which enhances their comprehension of retirement decisions. The findings emphasize the importance of providing effective decision support tools and guidance for pension plan participants facing complex retirement choices.
Lisa Brüggen is Director of Netspar, Professor for Financial Services at Maastricht University School of Business and Economics (SBE) and Principal Investigator at BISS, The Brightlands Institute for Smart Society. She is also member of the supervisory board of NIBUD, and member of the policy advise group pensions from SPMS.
She is an internationally recognized expert in financial services, financial behavior, choice guidance and retirement communications. She has received several awards, including the American Marketing Association's Emerging Scholar Award. She also obtained NWO and Netspar grants for her research on retirement communication and how to better prepare for approaching retirement. Her work has been published in leading international journals, such as the Journal of Marketing. She likes to bridge the gap between science and practice and shares her findings with the pension industry in an accessible way.
IPRA is an international organisation established with the aim of improving the quality and impact of research on pensions and related ageing issues to optimise social and economic outcomes for an ageing world. Individual researchers and organisations, including policy groups from across the world, interested in pensions and related ageing issues, are welcome to join IPRA. For more information visit iprassn.org.For more information visit iprassn.org.