Topic: Follow the Rating? How Disclosure Affects Retirement Income Product Choices in a Discrete Choice Experiment
Presenter: Inka Eberhardt, CEPAR, UNSW Sydney
Abstract: Voluntary annuitization from defined contribution pension or superannuation plans is uncommon, and in many countries, retirees self-insure against retirement risks by holding on to and even building up assets. Among the reasons for low annuitization is that retirees are unaware of the menu of retirement income products available and the design and impact of specific product features. In Australia, the setting for this study, the government has proposed a one-page, simplified and standardized Fact Sheet for retirement income products, with the aim of enhancing retiree decision making. We conducted online discrete choice experiments with 1,007 participants aged between 55 and 67 years to test the effectiveness of the Fact Sheet. We tested four versions, varying the amount of text, the number of information items, and the inclusion (or not) of graphs versus tables in a between-subjects design. We find that from a menu of annuity, phased withdrawal and hybrid products, with mandatory presentation of the Fact Sheets, participants were likely to choose the lifetime annuity and annuity/phased withdrawal hybrid most often. Contrary to the actual behaviour of Australian retirees (who predominantly choose phased withdrawal products), the phased withdrawal was least preferred. Of the five proposed Fact Sheet information items, we find that decisions to choose retirement income products are mostly driven by the Product Rating (a 1-7 risk rating) and Average Annual Income. As well, the lifetime annuity and the annuity/phased withdrawal hybrid products are more likely to be chosen in Fact Sheet treatments with graphs and tables, as compared to the Text-only treatment, where the Product Rating is more salient Our findings suggest that Fact Sheet composition, especially the context and derivation of the prescribed Product Rating, drive decision-making so the information items must be carefully designed.
Inka Eberhardt is a CEPAR Research Fellow, located in the UNSW Business School. She joined the Centre in October 2018. She completed her BA in European Studies and her MSc in Economics of Public Policy and Management in the Netherlands, and is to receive a PhD in Finance from Maastricht University in 2020. In Maastricht she conducted field experiments and survey research on pension communication in collaboration with the Dutch pension fund for the retail sector. Inka is interested in the interface between behavioural economics and pension systems. The aim of her research is to enable consumers to make better choices.