Hostname: page-component-cd9895bd7-mkpzs Total loading time: 0 Render date: 2024-12-26T19:29:39.210Z Has data issue: false hasContentIssue false
  • English
  • Français

Supporting decision-making in retirement planning: Do diagrams on Pension Benefit Statements help?

Published online by Cambridge University Press:  13 February 2019

Féidhlim P. McGowan  and
Peter D. Lunn
Féidhlim P. McGowan*
Affiliation:
The Economic and Social Research Institute, Dublin, Ireland
Peter D. Lunn
Affiliation:
The Economic and Social Research Institute, Dublin, Ireland Department of Economics, University of Dublin Trinity College, Dublin, Ireland
*
*Corresponding author. Email: fmcgowan@tcd.ie
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates whether exposure to explanatory diagrams can affect a major financial decision. In a controlled experiment, participants were given Pension Benefit Statements with or without one or two diagrams, before answering incentivised questions that measured recall, comprehension and choice of contribution rate. The diagrams had at best a marginal influence on recall or comprehension. Nevertheless, a diagram relating contributions to income projections prompted more participants to advocate higher contributions, while both diagrams influenced the rationale participants gave for decisions. The implication is that although pension products remain hard to understand, diagrams may alter decisions by reinforcing relevant causal thinking.

Keywords

Decision-makingexperimentinformation disclosureretirement planningC91D14D91
Type
Article
Information
Journal of Pension Economics & Finance , Volume 19 , Issue 3 , July 2020 , pp. 323 - 343
Copyright
Copyright © Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ainsworth, S (2006) DeFT: a conceptual framework for considering learning with multiple representations. Learning and Instruction 16, 183–198.CrossRefGoogle Scholar
Anderson, LW, Krathwohl, DR, Airasian, PW, Cruikshank, KA, Mayer, RE, Pintrich, PR, Raths, J and Wittrock, MC (2001) A Taxonomy for Learning, Teaching, and Assessing: A Revision of Bloom's Taxonomy of Educational Objectives. New York: Longman.Google Scholar
Baldwin, B (2008) The shift from DB to DC coverage: a reflection on the issues. Canadian Public Policy 34, 29–37.CrossRefGoogle Scholar
Banks, J and Oldfield, Z (2007) Understanding pensions: cognitive function, numerical ability and retirement saving. Fiscal Studies 28, 143–170.CrossRefGoogle Scholar
Barrett, A, Mosca, I and Whelan, B (2015) How well-informed are pension scheme members on their future pension benefits? Evidence from Ireland. Journal of Aging & Social Policy 27, 295–313.CrossRefGoogle ScholarPubMed
Benartzi, S and Thaler, RH (2013) Behavioral economics and the retirement savings crisis. Science 339(6124), 1152–1153.CrossRefGoogle ScholarPubMed
Bernheim, D (1988) Social security benefits: An empirical study of expectations and realizations. In Campbell, RR and Lazear, E (eds), Issues in Contemporary Retirement. Stanford: Hoover Institution, pp. 312–355.Google Scholar
Bernheim, D (1995) Do households appreciate their financial vulnerabilities? An analysis of actions, perceptions, and public policy. Tax Policy and Economic Growth 3, 11–13.Google Scholar
Bernheim, BD and Garrett, DM (2003) The effects of financial education in the workplace: evidence from a survey of households. Journal of Public Economics 87, 1487–1519.10.1016/S0047-2727(01)00184-0CrossRefGoogle Scholar
Bloom, BS (ed.), Englehart, MD, Furst, EJ, Hill, WH and Krathwohl, DR (1956) Taxonomy of Educational Objectives: The Classification of Educational Goals. Handbook 1: Cognitive Domain. New York, NY: David McKay.Google Scholar
Börsch-Supan, A (2004) Mind the gap: the effectiveness of incentives to boost retirement saving in Europe. Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung, 7.Google Scholar
Bottazzi, R, Jappelli, T and Padula, M (2006) Retirement expectations, pension reforms, and their impact on private wealth accumulation. CFS Working Paper, No. 2006/10.CrossRefGoogle Scholar
Broadbent, J, Palumbo, M and Woodman, E (2006) The shift from defined benefit to defined contribution pension plans – implications for asset allocation and risk management. Reserve Bank of Australia, Board of Governors of the Federal Reserve System and Bank of Canada, pp. 1–54.Google Scholar
Butcher, KR (2006) Learning from text with diagrams: promoting mental model development and inference generation. Journal of Educational Psychology 98, 182.CrossRefGoogle Scholar
Carroll, GD, Choi, JJ, Laibson, D, Madrian, BC and Metrick, A (2009) Optimal defaults and active decisions. The Quarterly Journal of Economics 124, 1639–1674.CrossRefGoogle ScholarPubMed
Case, R (2013) The unfortunate consequences of Bloom's taxonomy. Social Education 77, 196–200.Google Scholar
Council Directive (EU) 2016/2341 of the European parliament and of the council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (recast). Official Journal of the European Union L 354, 23.12.2016, 37–85.Google Scholar
Crawford, R and O'Dea, C (2012) The adequacy of wealth among those approaching retirement (No. R72). IFS Reports, Institute for Fiscal Studies.10.1920/re.ifs.2012.0072CrossRefGoogle Scholar
Crawford, R and Tetlow, G (2012) Expectations and Experience of Retirement in Defined Contribution Pensions: A Study of Older People in England. London: Institute for Fiscal Studies.Google Scholar
Cromley, JG, Snyder-Hogan, LE and Luciw-Dubas, UA (2010) Cognitive activities in complex science text and diagrams. Contemporary Educational Psychology 35, 59–74.CrossRefGoogle Scholar
Crowe, A, Dirks, C and Wenderoth, MP (2008) Biology in Bloom: implementing Bloom's taxonomy to enhance student learning in biology. CBE – Life Sciences Education 7, 368–381.CrossRefGoogle ScholarPubMed
CSO (2016) QHNS module on Pensions Q4 2015 (full). Available at https://pdf.cso.ie/www/pdf/20160530084332_QNHS_Module_on_Pensions_Q4_2015_full.pdf.Google Scholar
Delp, C and Jones, J (1996) Communicating information to patients: the use of cartoon illustrations to improve comprehension of instructions. Academic Emergency Medicine 3, 264–270.10.1111/j.1553-2712.1996.tb03431.xCrossRefGoogle ScholarPubMed
Dolls, M, Doerrenberg, P, Peichl, A and Stichnoth, H (2018) Do retirement savings increase in response to information about retirement and expected pensions? Journal of Public Economics 158, 168–179.CrossRefGoogle Scholar
Duflo, E and Saez, E (2003) The role of information and social interactions in retirement plan decisions: evidence from a randomized experiment. The Quarterly Journal of Economics 118, 815–842.CrossRefGoogle Scholar
Duflo, E, Gale, W, Liebman, J, Orszag, P and Saez, E (2006) Saving incentives for low-and middle-income families: evidence from a field experiment with H&R Block. The Quarterly Journal of Economics 121, 1311–1346.CrossRefGoogle Scholar
Dushi, I and Honig, M (2015). How much do respondents in the health and retirement study know about their contributions to tax-deferred contribution plans? A cross-cohort comparison. Journal of Pension Economics and Finance 14, 203–239.10.1017/S1474747214000237CrossRefGoogle Scholar
Dvorak, T and Hanley, H (2010) Financial literacy and the design of retirement plans. The Journal of Socio-Economics 39, 645–652.CrossRefGoogle Scholar
Echalier, M, Adams, J, Redwood, D and Curry, C (2013) Tax relief for pension saving in the UK. Retrieved 10 18, 2017. Available at http://www.pensionspolicyinstitute.org.uk.Google Scholar
Farkas, S and Johnson, J (1997) Miles to Go: A Status Report on Americans’ Plans for Retirement. New York: Public Agenda.Google Scholar
Finseraas, H, Jakobsson, N and Svensson, M (2017) Do knowledge gains from public information campaigns persist over time? Results from a survey experiment on the Norwegian pension reform. Journal of Pension Economics and Finance 16, 108–117.CrossRefGoogle Scholar
Foster, L (2017) Young people and attitudes towards pension planning. Social Policy and Society 16, 65–80.CrossRefGoogle Scholar
Fuentes, O, Lafortune, J, Riutort, J, Tessada, J and Villatoro, F (2017) Personalized Information as a Tool to Improve Pension Savings: Results from a Randomized Control Trial in Chile. Documento de Trabajo IE-PUC, 483.Google Scholar
Furst, EJ (1981) Bloom's taxonomy of educational objectives for the cognitive domain: philosophical and educational issues. Review of Educational Research 51, 441–453.CrossRefGoogle Scholar
Goda, GS, Manchester, CF and Sojourner, AJ (2014) What will my account really be worth? Experimental evidence on how retirement income projections affect saving. Journal of Public Economics 119, 80–92.CrossRefGoogle Scholar
Government of Ireland (2017) A Roadmap for Pensions Reform. Available at https://www.welfare.ie/en/pressoffice/pdf/PensionsRoadmap.pdf.Google Scholar
Grinblatt, M, Ikäheimo, S, Keloharju, M and Knüpfer, S (2015) IQ and mutual fund choice. Management Science 62, 924–944.CrossRefGoogle Scholar
Guiso, L, Jappelli, T and Padula, M (2013) Pension wealth uncertainty. Journal of Risk and Insurance 80, 1057–1085.CrossRefGoogle Scholar
Gustman, AL and Steinmeier, TL (2005) Imperfect knowledge of social security and pensions. Industrial Relations: A Journal of Economy and Society 44, 373–397.Google Scholar
Houts, PS, Doak, CC, Doak, LG and Loscalzo, MJ (2006) The role of pictures in improving health communication: a review of research on attention, comprehension, recall, and adherence. Patient Education and Counseling 61, 173–190.CrossRefGoogle ScholarPubMed
Irish Life (2014). Irish Life defined contribution retirement readiness report 2014. Accessed at https://www.irishlifecorporatebusiness.ie/release-our-defined-contribution-retirement-readiness-report.Google Scholar
Iyengar, SS and Kamenica, E (2010) Choice proliferation, simplicity seeking, and asset allocation. Journal of Public Economics 94, 530–539.10.1016/j.jpubeco.2010.03.006CrossRefGoogle Scholar
Karamustafaoglu, S, Sevim, S, Karamustafaoglu, O and Cepni, S (2003) Analysis of Turkish high-school chemistry-examination questions according to Bloom's taxonomy. Chemistry Education Research and Practice 4, 25–30.10.1039/B2RP90034CCrossRefGoogle Scholar
Krathwohl, DR (2002) A revision of Bloom's taxonomy: an overview. Theory into Practice 41, 212–218.CrossRefGoogle Scholar
Lord, T and Baviskar, S (2007) Moving students from information recitation to information understanding-exploiting Bloom's taxonomy in creating science questions. Journal of College Science Teaching 36, 40.Google Scholar
Lusardi, A (2008) Household saving behavior: The role of financial literacy, information, and financial education programs (No. w13824). National Bureau of Economic Research.10.3386/w13824CrossRefGoogle Scholar
Lusardi, A and Mitchell, OS (2007) Baby boomer retirement security: the roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics 54, 205–224.CrossRefGoogle Scholar
Lusardi, A, Mitchell, OS and Curto, V (2010) Financial literacy among the young. Journal of Consumer Affairs 44, 358–380.CrossRefGoogle Scholar
Mayer, RE (2002). Multimedia learning. In Psychology of Learning and Motivation, vol. 41. Cambridge, MA: Academic Press, pp. 85–139.Google Scholar
Madrian, BC and Shea, DF (2001) The power of suggestion: inertia in 401 (k) participation and savings behavior. The Quarterly Journal of Economics 116, 1149–1187.10.1162/003355301753265543CrossRefGoogle Scholar
McCrudden, MT, Schraw, G, Lehman, S and Poliquin, A (2007) The effect of causal diagrams on text learning. Contemporary Educational Psychology 32, 367–388.CrossRefGoogle Scholar
Mitchell, OS (1988) Worker knowledge of pension provisions. Journal of Labor Economics 6, 21–39.CrossRefGoogle Scholar
Mitchell, O and Moore, J (1998) Can Americans afford to retire? New evidence on retirement saving adequacy. The Journal of Risk and Insurance 65, 371–400.CrossRefGoogle Scholar
Munnell, AH, Webb, A and Golub-Sass, F (2012) The national retirement risk index: an update. Center for Retirement Research at Boston College 1, 719–744.Google Scholar
O'Dea, C (2015) Auto-enrolment into pensions: an option for Ireland? Retrieved 10 19 2017. Available at http://www.publicpolicy.ie/auto-enrolment-pensions-option-ireland/.Google Scholar
OECD (2014) OECD Reviews of Pensions Systems. Ireland, OECD Publishing.Google Scholar
Organisation for Economic Co-operation and Development (OECD) Staff (2015) Pensions at a Glance 2015: OECD and G20 Indicators. Paris: OECD.Google Scholar
Peirce, JW (2007) Psychopy – psychophysics software in Python. Journal of neuroscience methods 162, 8–13.CrossRefGoogle ScholarPubMed
Peirce, JW (2009) Generating stimuli for neuroscience using PsychoPy. Frontiers in neuroinformatics 2, 10.Google ScholarPubMed
Pieters, R and Wedel, M (2004) Attention capture and transfer in advertising: brand, pictorial, and text-size effects. Journal of Marketing 68, 36–50.10.1509/jmkg.68.2.36.27794CrossRefGoogle Scholar
Poterba, J, Rauh, J, Venti, S and Wise, D (2007) Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth. Journal of Public Economics 91, 2062–2086.CrossRefGoogle ScholarPubMed
Ramnath, S (2013) Taxpayers’ responses to tax-based incentives for retirement savings: evidence from the saver's credit notch. Journal of Public Economics 101, 77–93.CrossRefGoogle Scholar
Scholz, J and Seshadri, A (2009) What Replacement Rates Should Households Use? SSRN Working Paper. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1513387.Google Scholar
Stango, V and Zinman, J (2009) Exponential growth bias and household finance. The Journal of Finance 64, 2807–2849.CrossRefGoogle Scholar
Sunstein, CR (2011) Empirically informed regulation. The University of Chicago Law Review 78, 1349–1429.Google Scholar
Swart, AJ (2010) Evaluation of final examination papers in engineering: a case study using Bloom's taxonomy. IEEE Transactions on Education 53, 257–264.CrossRefGoogle Scholar
Thaler, RH and Benartzi, S (2004) Save more tomorrow™: using behavioral economics to increase employee saving. Journal of Political Economy 112, 164–187.CrossRefGoogle Scholar
Thorp, S, Bateman, H, Dobrescu, L, Newell, B and Ortmann, A (2017) Flicking the switch: simplifying disclosures to improve retirement plan choices. Available at https://ssrn.com/abstract=2783113.Google Scholar
Wagenaar, WA and Sagaria, SD (1975) Misperception of exponential growth. Perception & Psychophysics 18, 416–422.CrossRefGoogle Scholar