Abstract:
Pension plan members are confronted with an array of decisions prior to retirement. These choices encompass considerations such as the timing of retirement, the potential withdrawal of a lump-sum amount, and the preference for a fixed or variable payout structure. Often, these decisions are irrevocable and shape the retirement income for one's lifetime. Thus, it is imperative that pension plan participants make well-informed choices congruent with their personal situation and preferences. As of July 1, 2023, Dutch pension providers are legally mandated to assist plan members in the Netherlands in navigating decisions concerning retirement dates and drawdown methods.
Technological solutions, such as online decision support tools, provide personalized decision support that is available 24/7. Understandably, many pension providers view these tools as a promising avenue to offer personalized and efficient assistance to a large number of participants. However, pension-related choices entail significant complexity, and participants often lack the financial and digital literacy to proficiently engage with such online tools and grasp the pertinent trade-offs linked to various alternatives. Consequently, the central research question centers on whether online decision support tools suffice to support pension plan participants in the choices they have to make.
This study investigates decision-making among pension plan participants in the Netherlands regarding four different drawdown choices. A field experiment involving 98 participants nearing retirement was conducted. Participants were randomly assigned to one of three conditions: (1) Independent use of an online tool, (2) Group session using the tool with facilitators, and (3) 1-on-1 session with a financial advisor guiding tool usage. The study assesses participants' choices, decision comfort, understanding, perceived value of the sessions, and self-assessment of expertise. Results show that more intensive guidance leads to better understanding of retirement choices and a more conscious decision-making process, and was perceived as more valuable. Interestingly, participants who received additional guidance rated their expertise lower, indicating a more realistic perception of their knowledge. The study underscores the significant demand for choice guidance and suggests that participants benefit from personalized support, which enhances their comprehension of retirement decisions. The findings emphasize the importance of providing effective decision support tools and guidance for pension plan participants facing complex retirement choices.
