Understanding Heterogeneity in Pension Plan Decisions: The Retirement Belief Model

Centre for Decision Research

Wiebke Eberhardt is a PhD candidate at the department of Finance and the department of Marketing and Supply Chain Management at Maastricht University. She is currently a visiting researcher at Leeds University Business School and is working closely with the Centre for Decision Research. Wiebke is also a member of the Pension Communication group at Maastricht University and junior fellow at Netspar. In 2015 she was awarded the Investments and Pensions Europe Pensions Scholarship Fund research grant.

Portrait photograph of Wiebke Eberhardt

Are you prepared for retirement?

You probably want to stop reading now: pensions and retirement are things most people do not want to think about – it’s considered dull, scary and complex. This is exactly what my research is about.

Encouraging people to prepare themselves for retirement is one of the biggest challenges for policy makers in 21st century ageing societies. In the UK for example, around 12 million people currently working face inadequate income in retirement. Reforms of our pension systems result in more choice, greater responsibility and higher investment risk for people. This shift puts individuals in the role of decision-makers, a role that many are not ready for. Studies suggest that while some people seek information about expected retirement benefits, the majority know very little about their pension and do not read the information given by pension providers. Potential pension gaps (the difference between what you will need in retirement and your actual pension savings) remain undetected, with severe consequences for individuals once they retire.

At this point, we do not know what drives some people to gain information and how we can activate more individuals. Within the retirement planning process, gaining information is the first step – without information on expected retirement benefits, people cannot make sound decisions on, for example, how much to save, when to retire etc. Pension providers are confronted with many different participants in their pension schemes. Limited personal contact with and knowledge about participants (beyond financials and demographics) is inherent to the system. This makes it even more difficult to understand participants’ behaviour and choices, and to communicate effectively.

Together with my colleagues Chantal Hoet from Aegon (one of the largest insurance companies in the Netherlands), Lisa Brüggen and Thomas Post from Maastricht University, I wanted to understand why some people search for information about their pensions while others do not.

We developed a model to identify the most relevant beliefs surrounding pensions: the Retirement Belief Model. We hypothesise that in order for individuals to search for information, they have to:

  1. Believe that the consequences of not informing themselves are severe (severity)
  2. Believe that they are at risk of experiencing an undesirable outcome such as a pension gap (susceptibility)
  3. Think that the benefits of gaining information outweigh the costs (benefits vs. barriers)
  4. Feel that they are able to change their situation (self-efficacy).

We conducted a survey involving 583 pension plan participants to identify the most relevant beliefs and emotions. Our findings indicate that the “usual suspects”, namely the older, higher educated, wealthier and male participants, are more likely to be informed. We show, however, that using only socio-demographic information is not well suited for explaining information search intention. Beliefs and psychographic (the study of personality, values, opinions, attitudes, interests and lifestyles) dimensions play an important role and are essential in the way segments of pension plan participants are formed.

We found that participants are more likely to acquire pension information when perceived barriers are low, while perceived benefits and severity are high. If participants perceive low self-efficacy to inform themselves, their intention to do so is actually high. Since this finding contradicts our hypothesis, we conducted a separate analysis on the relationship between the level of information that people already have and self-efficacy. We found that individuals who have a high self-efficacy are more likely to already be informed, and therefore have no intention to do so (again) in the near future. Trust in their own pension provider and retirement anxiety also positively influence individuals’ motivation to search for information.

We then used the model for segmentation purposes (to divide and define the participants) and found three segments: the overconfident, the emotional, and alpha males. Each segment has different beliefs that determine the intention to become active.

For the overconfident, self-efficacy has a significant negative impact; they feel that they can obtain the necessary information, whereas in practice they do not actually do so. The emotional segment experiences high levels of retirement anxiety, which together with their perceived benefits of gaining information stimulates them to take action. For the third segment, the alpha males, it depends on trust in their pension provider for them to seek information. For this segment, the belief that the consequences of not being informed are very severe is also a key trigger to act.

Our findings support our expectation that heterogeneity of participants matters, and they underline the need to approach different groups differently. In other words, as participants are diverse and face different barriers and drivers, communications need to be tailored differently. We expect, for example, that for individuals who are overconfident it would be important to create a sense of urgency, since they are the most vulnerable to a pension gap but fail to act even though they feel they could do so. For the emotional segment, communication may focus on feelings, emphasising the peace of mind that participants can gain by becoming informed. In communication with alpha males, trust and severity should be stressed.

Based on our findings, we expect that personalised messages would increase their relevance, lead to awareness, and stimulate action. Personalising the information provided to participants could help in getting individuals more involved with their personal retirement planning. However, developing personalised messages is only possible when the relevant beliefs of different segments are known. Yet we lack knowledge about how different target groups react to different types of framing information.

Based on the insights from our research, we can make a step forward in adapting communication to the different segments of the participants involved. More research is needed on how to improve pension communication: ideally it should trigger people to become informed about how they want to live in retirement, and whether what they are currently saving will be enough to afford this lifestyle.


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The views expressed in this article are those of the author and may not reflect the views of Leeds University Business School or the University of Leeds.