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Retirement Drawdown Defaults: The Role of Implied Endorsement

Woman offering aged care support

Jennifer Alonso-García, Hazel Bateman, Johan Bonekamp, and Ralph Stevens

Implied endorsement is considered, together with inertia, as an explanation for the stickiness of defaults. This paper explores whether implied endorsement can serve as an explanation for the stickiness of defaults in the retirement decumulation phase. Using an experimental survey fielded in both the Netherlands and Australia, we analyze whether individuals perceive mandatory minimum withdrawals from their pension wealth set by the government as implicit advice from the government (“government knows best”) or recommendations from peers (“what most people do”). We find that vulnerable groups, such as those with low financial resources and pension capabilities, are more likely to find implied endorsement important. However, those who are overconfident about their capabilities find it less important and are susceptible to adverse choices. As expected, the peer effect is reduced for those with less opportunity to participate in a social network.

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