How disclosure affects retirement income product choices in a discrete choice experiment

Consumers in most Defined Contribution superannuation and pension plans annuitize less of their savings than is considered appropriate. As a result, retirees self-insure by holding on to and even building up assets. 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. We tested four versions of the Fact Sheet, varying the amount of text, and inclusion of graphs and tables in a between-subjects design. We find that using the Fact Sheets participants were likely to choose the Annuity and Annuity/ABP hybrid most often: 33% and 34% of the time respectively. Contrary to the actual behaviour of Australian retirees (who predominantly choose ABPs), the ABP was least preferred (14%). Of the information items proposed for inclusion in the Fact Sheet, we find that Product Rating and Average Annual Income are the most important information items that drive decisions to choose retirement income products. Compared to the Text-only treatment, the Annuity and the Annuity/APB hybrid are more likely to be chosen in the versions with graphs and tables where the Product Rating is more salient. Our findings suggest that the Fact Sheet composition, especially the context and derivation of the prescribed Product Rating, drive decision-making so must be carefully designed.

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