Flexibility in pension benefits offers advantages
A more flexible interpretation of pension benefits offers advantages. People who are limited in their financial choices benefit most from schemes that help to better attune pension income to to their personal life situation. Opposite these advantages are disadvantages that somewhat limit the gains of more flexibility. More flexibility can lead people to bad financial choices more quickly. This is shown by a Netspar paper by researchers from CPB and Tilburg University.
The living conditions of people in the Netherlands have become more varied over the past decades. A large number of people, when asked, also indicate that they would appreciate more freedom in the way in which the pension is paid out. Consider, for example, the possibility of pay out part of the accrued pension assets in one go (lump sum) at the moment of retirement. Or the option to vary the pension benefit in the retirement phase. On the other hand, more flexibility is associated with risks, such as the withdrawal of too much money at the start of the pension phase.
The research shows that the social benefits of better reconciliation of pension income on individual living conditions can be much greater than the losses due to errors in financial planning. These benefits are greater when people do not have other financial resources in addition to their pension to shift their consumption over time. Expert guidance in making choices can further limit the adverse effects, but is accompanied by higher implementation costs.
In 2017 Netspar also did research on the value of customization in pensions and the desirability of freedom of choice. Also read:
What options are desirable from the participant’s perspective? (Casper van Ewijk, Chantal Hoet, Roel Mehlkopf, Sara van den Bleeken
The value of customization in pensions (summary Netspar Brief), Roel Mehlkopf