Engagement with Retirement Savings: It Is a Matter of Trust

Abstract

People who engage with their retirement savings are more likely to opt out of unsuitable defaults. We use cluster analysis of matched survey and administrative data to identify groups of pension plan members that are alike in their attitudes toward retirement saving. We find that engaged and disengaged members segregate into groups based on their interest and trust. Group membership in turn helps predict plan engagement, as proxied by nondefault choices. Specifically, engagement is stronger among interested groups. Trust, however, has a more complex relationship with engagement, particularly as it interacts with interest. While members with low interest and high trust are less likely to engage (e.g., by not checking plan performance), less trusting members engage more (e.g., by actively choosing asset allocations). As interest and trust successfully determine group membership, and ultimately engagement, pension plan providers should address members' diverse needs and circumstances with personalized approaches.

Experiences of current and former members of self-managed superannuation funds

“…Overall, higher wealth stakes (or higher actual operating expense) signal greater general interest in superannuation. This finding is consistent with studies of interest by large fund members (Bateman et al, 2014;Deetlefs et al, 2018).…”

The financial vulnerability trap: using latent transition analysis to explore the dynamics of consumers’ financial vulnerability over time

“…Specifically, we show that these stakeholders can get a lot of traction from focusing on a few fundamental psychological characteristics of vulnerable consumerssuch as their financial self-efficacy and consideration of future consequenceswhen developing strategies to prevent them from becoming or staying "trapped" in a situation of heightened financial vulnerability. Doing so is important, given the detrimental consequences of financial vulnerability (Hoffmann and McNair, 2019) and the ever-increasing self-responsibility for making consequential financial decisions affecting consumers' immediate and future financial well-being (Deetlefs et al, 2019). Previous work highlights the negative psychological impact of financial difficulty on consumers (Bridges and Disney, 2010), with perceived financial well-being affecting overall well-being in orders comparable to other major characteristics such as physical health (Netemeyer et al, 2018).…”

How Does Consumers' Financial Vulnerability Relate to Positive and Negative Financial Outcomes? The Mediating Role of Individual Psychological Characteristics

“…Today's consumers face increasing self‐responsibility for making consequential financial decisions affecting their immediate as well as future financial well‐being. For instance, an ongoing shift from defined benefit to defined contribution plans heightens individuals' responsibility for managing their own pension savings and preparing for retirement (Deetlefs et al In press; van Rooij, Lusardi, and Alessie ), transferring the burden of smoothing consumption over one's lifetime from pension plan providers to individual consumers (Alessie and Lusardi ; Browning and Crossley ). However, given overall low levels of financial literacy and dropping household savings rates (Organisation for Economic Cooperation and Development ), many consumers seem either ill‐prepared or unable to take on increased financial responsibility.…”