Choice and customization in pensions; economic & legal aspects and data science
At the moment, pension schemes offer participants a wide range of options. Some examples include supplementary risk coverage, advancing or postponing the retirement date and the conversion of pensions. Expectations are that the need for such options – especially in a new pension contract that assumes individual pension assets – will increase in the years to come. Current legislation on pensions and pension accrual is based on the assumption that consumers are rational people, able to weigh up their interests before reaching a decision. Behavioral science studies, however, demonstrate that consumers deviate from their rational decision course for various reasons and often make intuitive choices instead. These dynamics have a major effect on choices about pensions and the accrual thereof (present bias).
One way to empower consumers when making pension-related decisions is to nudge them. Nudging is often used by, for instance, behavioral insight teams in the UK and the US. One good example of that within the context of pension schemes is ‘Save more tomorrow’. By linking future wage rises to the pension, good results are achieved. Nudging is also used in the Netherlands on an increasing basis, particularly in marketing applications. In terms of the law, however, nudging is a relatively new phenomenon. In 2015, the Netherlands Authority for the Financial Markets [Autoriteit Financiële Markten (AFM)] started to explore nudging along two axes, looking at experiences of its English counterpart, the FCA. On the one hand, nudging is regarded as something that may prompt consumers to make the right decision and on the other, the possibilities of preventing businesses (and pension administrators) from abusing nudging are being studied. Banks and insurance companies have a wealth of valuable personal data and this big data could be used to influence the pension choices of participants by nudging them. The use of such big data is, however, sensitive.
For that reason, we propose to write a topicality paper in which we explore this issue in a multidisciplinary way. Relevant research topics could include:
- What pension options are possible and what are the consequences thereof for pension administrators and participants;
- To what extent do participants have a need for options and is it wise, from a behavioral economics perspective, to introduce such options;
- Which economically relevant data do pension administrators and participants need to implement such options appropriately;
- Which legal privacy aspects are relevant when using big data within the context of pension schemes;
- Which ethical obstacles are relevant when using big data within the context of pension schemes;
- Which potential security issues are relevant when using big data within the context of pension schemes;
- Which form of nudging is possible, given the current legislative framework;
- What is the relationship between nudging on the basis of big data and fundamental