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Saving preferences in retirement: the impact of pension policy design and health status

Elderly couple researching pension options

Jennifer Alonso-García, Hazel Bateman, Johan Bonekamp, Arthur van Soest and Ralph Stevens

Using an online experimental survey, we investigate the importance of rational and psychological motives for saving in retirement for soon to be retired individuals. Our experimental task uses vignettes to elicit the impact of alternative retirement income policy settings comprising combinations of regular income and wealth, and major life events such as becoming frail and/or losing a spouse. Findings indicate that people modify their savings motives where a major life event is expected and the precautionary health savings motive becomes more important if the health of a spouse is expected to deteriorate in the near future. Our experimental survey is fielded in the Netherlands and Australia to allow investigation of the importance of the prevailing institutional settings (annuitized pension wealth in the Netherlands versus flexible drawdowns in Australia). Findings suggest that norms and awareness of the potential risks faced in the actual institutional setting are more important for the ranking of savings motives than the experimental institutional setting for the retirement income provision (income through full annuitization versus flexible withdrawal). This suggests that retirees may be slow to adjust their saving motives and spending patterns following an actual policy shift from flexible drawdowns to annuitization or vice versa.