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Motivated Saving: The Impact of Projections on Retirement Saving

Presented at the 28th Colloquium on Pensions and Retirement Research

Topic: Motivated Saving: The Impact of Projections on Retirement Saving

Speaker: Professor Susan Thorp (University of Sydney)

Abstract: Many pension plan participants find it hard to judge what their current balance means for retirement provision. The results of a field study and a choice experiment show that pension plans that give both income and balance projections are likely to motivate higher voluntary savings by participants. In the field study, conducted by a large pension plan in 2013-14, members of the treatment group received current balance, projected retirement balance and projected retirement income information, while members of the control received only current balance information. Within one year of the treatment, the frequency, and average amount, of additional savings by treated plan participants rose significantly, as did the rate of interactions with the plan. These effects persisted into the second year of the trial among the first-year treated group and emerged for the group of members who were newly treated in the second year. In the related choice experiment conducted in 2017, we tested the relative effect of (i) current balance; (ii) current balance and projected retirement balance; (iii) current balance and projected retirement income; and (iv) current balance, projected retirement balance and retirement income. Consistent with the field trial, the combination of balance and income projections motivates a significantly higher retirement accumulation after a sequence of ten savings decisions than current balance information alone. The effects of balance or income projections, while positive, are not significant. In the field trial, older respondents save at a higher level and respond more to the treatment. By contrast, in the online experiment, younger respondents are more sensitive to income and balance projections than the older survey respondents.

Bio: Susan Thorp is Professor of Finance at the University of Sydney. She researches consumer finance, focusing on retirement savings. She uses theoretical, empirical and experimental techniques to test consumer responses to advice, disclosures and choice architecture. Her research has been published in leading international academic journals including Management Science, the Review of Finance and the Economic Journal, and has attracted over four million dollars in public and industry funding. Susan is a member of the Steering Committee of the Mercer CFA Institute Global Pensions Index, a member of the Research Committee of the OECD/International Network on Financial Education and a Director of Super Consumers Australia.