Topic: The Demand for Retirement Products: The Role of Withdrawal Flexibility and Administrative Burden
Authors: Marike Knoef, Pim Koopmans and Max van Lent (Leiden University, Netspar)
Many people save too little for retirement. Especially the self employed are a vulnerable group. This paper studies whether increasing pre-retirement withdrawal flexibility and decreasing the administrative burden of retirement products can increase the demand for these products.
One the one hand, increasing pre-retirement withdrawal flexibility helps individuals to adjust finances to their personal circumstances. For example, when individuals have the option to withdraw money after a negative income shock, this may lower the barrier to save in a pension product. On the other hand, previous literature shows that some people voluntarily use commitment devices to accomplish their goals.
Using a stated preference analysis, we investigate several forms of flexibility, i.e. pre-retirement withdrawal flexibility after a negative income shock, for investments (in human capital), or to pay off a mortgage. The results show that the self employed are willing to give up 14% of the post-retirement benefit in order to have the option to withdraw money in case of low income or to pay off a mortgage. Employees, with on average a lower income volatility than the self employed, show a lower demand for pre-retirement withdrawal flexibility. Regarding the administrative burden, we find that only the self employed are willing to give up 8% of the post-retirement benefit to reduce the administrative burden.
Marike Knoef is professor of economics at Leiden University and Tilburg University, and director of the Network for Studies on Pensions, Aging and Retirement (Netspar). Marike likes to work together with different disciplines and to bridge the gap between research and practice. She is crown member of the Social and Economic Council in the Netherlands. Her research focuses on saving behavior, retirement, health, and the labor market.
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