Hazel Bateman and Inka Eberhardt
Abstract: Voluntary annuitization from defined contribution pension plans is uncommon, and in many countries, retirees self-insure against retirement risks by holding on to and even building up assets. Lack of awareness of retirement income products and their design and financial impact is a key reason for low take-up of annuity products. Using an online discrete choice experiment we test how a Fact Sheet presenting standardised information on key product features - income, risk, access to capital and death benefits - affects stated choices from a menu of annuity, phased withdrawal and bundled retirement income products. Our setting is Australia where retirees can choose how to decumulate their retirement savings. When using the Fact Sheet, participants chose the lifetime annuity and bundled annuity products most often, which is contrary to the actual behaviour of Australian retirees who predominantly take phased withdrawal products. Of five Fact Sheet information items, choices were mostly driven by the Product Rating (a 1-7 rating of protection against a fall in income due to inflation, market and longevity risk) and Average Annual Income. The lifetime annuity and the bundled lifetime annuity/phased withdrawal products were more likely to be chosen where Fact Sheets used graphs and tables to present information, and where the Product Rating is more salient. However perceptions of risk and control were more important to product choices than actual product knowledge or understanding of the Fact Sheet information. Our findings suggest that Fact Sheet information items, especially the prescribed Product Rating and the associated information on inflation, longevity and market risk decisions drive both perceptions and choice of retirement income product and must be carefully designed.
Keywords: information disclosure, retirement income products, discrete choice experiment, product perceptions