The annual pension information statement are the individuals aware of it? Evidence from SAVE 2011

Transcription

1 The annual pension information statement are the individuals aware of it? Evidence from SAVE 2011 Presentation 18 September 2012 CeRP Conference Financial Literacy, Saving and Retirement in an Ageing Society Marlene Haupt Max Planck Institute for Social Law and Social Policy Munich Center for the Economics of Aging (MEA)

2 Outline 1. Motivation 2. The Pension Information Statement in Germany 3. Data 4. First Results 2 / 17

3 1. Motivation Pension reforms in Germany - Changing socio-economic conditions - Shifting towards a multi-pillar pension system - Till 2002: monolithic system with a constant pension level safeguarding the standards of living in old age - The 2001 (Riester) pension reform: Stabilizing contribution rates by gradually reducing the pension level, offset by supplementary (occupational and private) pensions - Voluntary supplementary pensions but subsidized by direct savings subsidies and tax deduction to attract people especially for building up private Riester pensions 3 / 17

4 1. Motivation The German pension system First pillar Second pillar Third pillar First and second tier combined: earnings-related pension GRV Selfemployed Voluntary occupational pension Subsidized voluntary occupational pension: state-regulated; reduced tax rate; compulsion for employer to offer at least one type of occupational pension Voluntary private pension Subsidized private pension: Riester-Rente Miners White-collar Blue-collar and selfemployed craftsmen Other self-employed Liberal professions Farmers Civil servants Social assistance 4 / 17

5 1. Motivation Institutional layering - Integration of private savings accounts into a traditional payas-you-go pension system - Responsibility has shifted from the state towards individuals - Individuals may have problems to adapt themselves to the new policy - More information needed to know whether a supplementary pension is necessary - Higher transaction costs (higher search costs, more choices) - OECD proposes compulsory and automatic enrolment, provision of financial incentives, facilitated access to and choice in private pension systems - To be supported by financial literacy and education programs 5 / 17

6 1. Motivation Literature Review - Financial education - Collins/O Rourke (2010) reviewed 41 financial education and counselling programs finding cautiously optimistic effects - Van Rooij et al. (2011) find that financial education programs are likely to be more effective when targeted to specific groups of the population - Lusardi (2004) finds some evidence that at-work seminars increase coverage and contributions among low income workers - Duflo/Saez (2003) have found either just small effects of financial education on financial decision-making; or no evidence (Willis 2011) - Information - Mastrobuoni (2011) finds that the Social Security Statement has significant impact on workers knowledge about their benefits but that this improved knowledge has negligible impact on retirement behaviour - Liebman/Luttmer (2011) find a positive effect of information on behaviour 6 / 17

7 2. The Pension Information Statement Increased demand for information - Annual pension information statement (Renteninformation) (later in life: Rentenauskunft) Pension forecast (invalidity pension, old-age pension) + Forecast of the adjustment of pensions + Note advising the loss of purchasing power + Note advising the need for supplementary old-age provision 7 / 17

8 2. The Pension Information Statement Instrument is rarely investigated Does the information which is already issued by the German pension authority support the individuals decision making process? Which social groups are aware of the information provided, and does financial literacy have a role? Which pieces of information are the individuals aware of? Does reading the annual pension information statement (Renteninformation) change saving behaviour for retirement? 8 / 17

9 3. Data SAVE 2009 to 2011 German longitudinal household survey focused on saving behaviour Survey collects detailed quantitative information on both the financial structure and relevant socio-psychological aspects Several measures of financial literacy have been collected over the years 2011 survey includes three questions on the annual pension information statement 9 / 17

10 Summary Statistics (non-retired individuals, N=886) 4. First Results Variable Share in % Gender Male Female Living with a partner Yes No Age Younger than and older Schooling Low Intermediate High ,49 Occupational Training No/Other Vocational training Tertiary education Household Income and below to to More than / 17

11 Remembering having received the annual pension information statement Question 1 The German pension authority regularly sends so called pension information statements (Renteninformationen) with a variety of information on accrued and possible future pension claims: Have you received such individual pension information in 2010? Yes, no, do not know/refusal. received a pension information statement yes no don t know refusal male female total Source: Own calculation based on SAVE / 17

12 Question 2 Evaluation of different pieces of information provided Which pieces of information from the statement did you consider useful? Please rate the following items on a scale from 0 (not useful at all) to 10 (very useful) or haven t read/don t know/refusal. - Forecast of the amount of your invalidity pension - Forecast of the amount of your regular old-age pension - Notice advising the loss of purchasing power - Forecast of the adjustment of pensions with indexation rates of 1% and 2% respectively - Notice advising the need for supplementary old-age provision 12 / 17

13 50% 40% 30% 20% 10% 0% 0-3 (less useful) 4-6 (useful) 7-10 (more useful) not read/don't know/refusal Forecast invalidity pension Forecast regular old-age pension Note on loss of purchasing power Forecast pension adjustment Note on need for supplementary savings Source: Own calculation based on SAVE 2011.

14 SAVE 2011 Question 3 Changes in savings behaviour due to the information provided Have you changed your savings behaviour due to these pieces of information? Multiple answers permitted. - No - Yes, I finally made a specific plan for my old-age provision - Yes, I signed an occupational or private pension plan - Yes, I started saving more, but did not sign a supplementary pension plan - Other 14 / 17

15 100% 80% 81,51% 60% 40% 20% 10,77% 0% No 3,06% Yes, I made a plan Yes, I signed a pension plan 2,18% 2,47% Yes, I started saving more Other/refusal Source: Own calculation based on SAVE 2011.

16 Conclusion - Germans are aware of the information provided - Further research to investigate which social groups are less often aware of the information provided - Evaluation of different pieces of information varies - Information cannot change saving behaviour per se - To get a full picture of all benefits at retirement, workers need information from all sources to make sound decisions - Cross-pillar information is difficult to assemble 16 / 17

17 Thank you very much for your attention! 17 / 17

18 Back Up 18 / 17

19 SAVE 2011 Question 1 19 / 17

20 SAVE 2011 Question 2 20 / 17

21 SAVE 2011 Question 3 21 / 17

22 2. Literature and hypotheses The normative behavior of beneficiaries Life-cycle hypothesis of saving (Modigliani/Brumberg 1954; Ando/Modigliani 1963; Modigliani 1986) The actual behavior of beneficiaries 14,9 million subsidized private Riester pension contracts until September 2011 (BMAS 2011) 30 to 42,8 million people eligible for subsidies (Bräuninger/Gräf 2005; Sommer 2007; Fasshauer/Toutaoui 2009; Geyer 2011) 40 percent coverage 22 / 17

23 Low-income earners underrepresented ( Coppola/Reil-Held 2009; Geyer/Steiner 2009) Occupational and private pension provision rather complementary goods (Börsch-Supan et al. 2008) Reform of the Riester reform in 2005 Simplified application procedure (one-off permanent benefit application) Annualized amount reduced to 70 % Minimum contribution standardized to 60 p. a. Reduction of certification criteria for Riester contracts Acquisition and marketing costs can be spread over five years (BMAS 2005) 23 / 17

24 a) Overall uptake of Riester pensions Proportion of households in % (95% confidence interval in black) Coppola/Gasche (2011), Calculations based on SAVE 2003 to / 17

25 b) Uptake of Riester pensions by number of children Proportion of households in % (95% confidence interval in black) 80% 70% 60% 50% 40% 30% 20% 10% 0% Kein Kind 1 Kind 2 Kinder 3+ Kinder SAVE 2003 SAVE 2005 SAVE 2006 SAVE 2007 SAVE 2008 SAVE 2009 SAVE 2010 Coppola/Gasche (2011), Calculations based on SAVE 2003 to / 17

26 1. Introduction c) Uptake of Riester pensions by household income (Income quintiles) Proportion of households in % (95% confidence interval in black) Coppola/Gasche (2011), Calculations based on SAVE 2003 to / 17

27 1. Introduction Why do actual and normative behavior of individuals diverge from each other when it comes to private old-age provision? Why aren t all eligible beneficiaries using these schemes and the corresponding subsidies? Hypothesis: There are barriers on the demand side due to a limited consumer sovereignty. Therefore, evidence from behavioral economics should be considered when communicating pension rights. 27 / 17

28 2. Theoretical framework 2. Theoretical framework: An institutional economic analysis using the homo oeconomicus institutionalis (HOI) model Modification of the standard economic model due to findings from institutional economics, psychology and behavioral economics From homo oeconomicus to homo oeconomicus institutionalis as theoretical framework for impact assessment (Bizer 1998; Führ 2003; Bizer/Gubaydullina 2007; Yollu-Tok 2010) 28 / 17

29 2. Theoretical framework SEM: The homo oeconomicus preferences selfish restrictions behavior utility maximizing restrictions All figures: Bizer/Gubaydullina / 17

30 2. Theoretical framework The homo oeconomicus and private Riester pensions SEM: Exact achievement of behavioral changes by the introduction of Riester pensions and the gradual reduction of the first pillar pension level However: No full acceptance of Riester pensions Imperfect explanation of individual behavior concerning private old-age provision using the homo oeconomicus model 30 / 17

31 2. Theoretical framework Modification 1: The homo oeconomicus as satisficer preferences selfish restrictions behavior utility maximizing bounded-rational rational-rule based restrictions 31 / 17

32 2. Theoretical framework The homo oeconomicus as satisficer and private Riester pensions Increased individual transaction costs Analysis of asset and income situation tends to be hindered considerably due to the increased search costs (Iyengar/Lepper 2000; Sethi-Iyengar et al. 2004; Oehler 2009) General aversion to finances or financial illiteracy (Choi et al. 2005; Lusardi 1999, 2001, 2003, 2004, 2007; Lusardi/Mitchell 2005, 2006, 2007) 32 / 17

33 2. Theoretical framework a) Knowledge about the eligibility for Riester subsidies 33 / 17

34 2. Theoretical framework About 49 % of respondents think they are eligible, 51 % think they are not eligible for Riester subsidies But: 73 % were eligible for subsidies, only 27% have never been eligible 92 % of those who considered themselves eligible for Riester subsidies are indeed eligible Only 46 % of those who report that they have never been eligible are right, 54% are wrong! The eligibility for Riester subsidies is heavily underestimated 34 / 17

35 2. Theoretical framework Observed vs. self-assessed eligibility for Riester subsidies by income quintiles not eligible for subsidies (% of households) quintile observed self-assessed underestimation total Coppola/Gasche (2011), Calculations based on SAVE 2005 to / 17

36 2. Theoretical framework b) Knowledge about the level of Riester subsidies 36 / 17

37 2. Theoretical framework 57% of households with a Riester contract can t estimate the level of subsidies 18% of respondents estimate the level of subsidies to be less than 25% of savings; in any case, this group is wrong Only 24% of households give the right answer by indicating that the level of subsidies is "high" (50% or more) or "medium high" (between 25% and 50%) 37 / 17

38 2. Theoretical framework Status-quo bias (Samuelson/Zeckhauser 1988; Loewenstein/Prelec 1992) Inactivity or flypaper effect (Choi et al. 2007) Inconsistent weighting of outcomes A certainty effect contributes to risk aversion An isolation effect leads to inconsistent preferences when choices are framed differently Individuals underweight the longevity risk (Kahneman/Tversky 1979) Old-age aversion (Lusardi 2000) 38 / 17

39 2. Theoretical framework Long periods between payments and return increase impatience to save for retirement (Reifner 2003) Presence-bias (Rabin 1998; O Donoghue/Rabin 1999) Hyperbolic discounting (Thaler 1981; Laibson 1997; Laibson et al. 1998; Frederick et al. 2002) 39 / 17

40 2. Theoretical framework Modification 2: The homo reciprocans preferences selfish social (fairness) restrictions behavior utility maximizing bounded-rational rational-rule based restrictions 40 / 17

41 2. Theoretical framework Modification 3: The homo oeconomicus institutionalis institutions institutions preferences selfish social (fairness) institutions behaviour utility maximizing bounded-rational rational-rule based emotional, affective, instinctive habitual 41 / 17

42 2. Theoretical framework The homo oeconomicus institutionalis and private Riester pensions Obligatory statutory insurance and the introduction of privately funded Riester pensions Habitual behavior of individuals is still conform to the old Bismarck system (path dependency) Individuals need time and assistance to adapt to the multipillar pension scheme 42 / 17