Individuals’ choices of comprehensive pension plans

Recent developments have increased the demands placed on individuals to plan for their own retirement. While traditionally many pension arrangements were organized collectively, now individuals are asked to take a more active and integral perspective on how to provide for a financially sound old age. In response, firms such as pension funds, insurers and financial advisors are looking for effective ways to assist individuals in this complex task. This is especially important because if individuals are taking insufficient action towards pension planning this is likely to lead to suboptimal retirement savings which can have significant negative effects on individual and societal welfare. In this project, we investigate different choice architectures for offering individuals more choice in pension plans and study what are promising ways to match different pension trajectories more closely to the needs of different individuals. We cover two key themes when addressing comprehensive retirement plan choices with our data collection and analyses. The first theme focuses on individuals’ mental integration of multiple risk components in choices between comprehensive retirement plans assuming they are faced with a simultaneous decision for all plan components. The second theme extends the first and addresses individuals’ sequential choice of risk components in comprehensive retirement plans. Retirement planning takes place over the life span, and to cope with risks, individuals can at each time follow different decision strategies. We investigate how different choice architecture formats (i.e., flexible component choice, a sorted list of plan recommendations, traditional full plan presentations) influence individuals’ preferences.

We distinguish two focal research themes in this project. The first theme addresses individuals’ mental integration of multiple risk components when choosing between comprehensive pension plans in cases in which they are faced with a simultaneous decision involving several plan components. The research in this theme aims to develop a better understanding of how individuals make decisions on their retirement age and retirement savings when information is given either on traditional pension products alone, or together with information on various other pension related components and the corresponding risks. This theme particularly addresses the impact of integrating versus partitioning different risk-return components within a comprehensive retirement plan on individuals’ risk return evaluations (Fox and Clemen 2005; Fox and Tversky 1998). Two prominent applications of this topic are firstly pension plan choices across the first, second and third pillar, and secondly pension plan choices when housing assets, and retirement age choices are included, and secondly pension plan choices when risk is introduced into individuals’ annuity payments after retirement together with the traditional risk in capital accumulation up to the point of retirement. Both applications are very timely in the context of the Dutch pension market, and the Netspar partners involved in this project have expressed a high interest in supporting data collection in these application areas.

Academic topics:

  • Individuals’ preferences for separate versus combined choices of pension plan components involving different risks and returns
  • The impact of integrating vs. partitioning different sources of pension income risks on plan choices
  • Customization with multiple vendors and components

Managerial topics

  • Consumers’ decisions when multiple risk components are involved in the pension decision (e.g., first, second and third pillar, housing wealth and labor)
  • Constructing a flexible Pension Builder to support comprehensive plan decisions online
  • Who should make which pension plan decision: the consumer vs. one or more firms?

The second theme focuses on moving from simultaneous to sequential pension plan component choices. Of particular interest within this second theme is the question how individuals value the possibility to postpone part of their pension plans decisions to later in life . Retirement planning takes place over the life span and to cope with risks individuals can decide for each component which option they prefer, either “now” based on their current evaluations of which option looks most promising (while also taking into account the future), or “later”, in which case they can postpone part of their component choices in the hope of obtaining more insights in their retirement situation in the future. Theoretically, this theme is mostly focused on how individuals take into account the value of uncertain future information when making decisions, and how they update their decisions after this information has been obtained (Laibson 1997; Conrad 1980). Within this theme we study pension plan choices in response to information on risks or returns at certain moments in the life cycle, and pension plan choices when investment risks occur before and after retirement.

Academic topics:

  • Individuals’ option value of delayed choices in pension plans
  • Individuals’ plan component choices in response to updated information about risky retirement plan decisions
  • Optimal adaptive customization

Managerial topics:

  • What alternatives to offer and when to offer them in a sequential comprehensive retirement choice?
  • How do consumers deal with postponed retirement plan component choices in response to (later) additional information?
  • Who should monitor and update pension plan fit over time?


Interrelated with these two themes we also address the question of how to provide personalized pension plans to individuals in such a way that plan acceptance is most likely to be increased. Two basic customization strategies have been distinguished in the literature (Arora et al. 2008; Bart et al 2016) that represent different ends of a customization continuum. On the one end, there is the option for the firm (or firms) to pro-actively construct an individual’s best fitting plan and offer that plan as a personalized recommendation. On the other end, there is the option of fully empowering individuals to make their own decisions for each of the multiple components of a pension plan. We investigate how different ways of combining these choice architecture formats (e.g., traditional full plan presentations, full plan personalized recommendations, flexible component choices, and flexible plan component recommendations) influence individuals’ preferences and customization acceptance in the simultaneous and sequential cases.

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Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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