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Pensions, financial literacy & motivation
Anne Seiersen
Danish Insurance Association
EGFE 4th of June 2010
Agenda Pensions, financial literacy & motivation
What we know
What we don't know
What we are
doing
The road
ahead
Side 2
What we know about pensions and financial literacy
Report: Financial Literacy and Transparency Initiatives and Tools in Life and Pensions
• The knowledge on pension issues is low among consumers
• Politicians and consumer associations ask for more, more detailed and more simplified information.
• All research and surveys show that the more the consumers know the more satisfied they are with their pension scheme and their pension provider
• But consumers are not using the numerous information sites and web tools developed
Side 3
What we know about pensions and financial literacy
Find the report here:
www.forsikringogpension.dk/Analyser/Documents/towers_perrin_report_skaerm.pdf
Side 4
Findings in the report
• The pension landscape is very diverse
• The way financial literacy questions are prioritised and dealt with depends on the general pension agenda
• Changes in pension systems, auto-enrollment, the relative weight of the three pillars of retirement income.
• Best practices – well known to this audience, but not in Denmark
Side 5
Basic facts about the Danish pension model
• flat rate public pension with a supplement depending on other income – poverty prevention
• occupational pensions - replacement
– mandatory by collective agreement
– covering 80-90 per cent of labour force
– replacement rates in combination with public pensions are 60-80 per cent
– defined contribution, contribution rates of 12-18 per cent of the salary
– retirement, disability, death, critical illness
• individual pensions - flexibility
Side 6
What we know
• Most consumers do not know or care about their pensions
• Many consumers do not try to understand
• To what degree are you interested in topics related to pensions?
Side 7
What we know
• 90 per cent are in (self perceived) good control of their personal finances
• All in all I think I have good control of my personal finances
Side 8
0
10
20
30
40
50
60
Meget enig Enig Uenig Meget uenig Ved ikke
Pct.
Alle Mænd Kvinder
What we know
• But more than 1/3 are unable to cover a minor unforeseen expense
• I always have enough money saved to buy for example a new refrigerator (in cash) in case the old one breaks down
Side 9
0
5
10
15
20
25
30
35
Meget enig Enig Uenig Meget uenig Ved ikke
Pct.
Alle Mænd Kvinder
What we know
• …and just half have in the last couple of years examined, if they can get better (i.e pay lower) interests on their loans
Side 10
0
5
10
15
20
25
30
35
Meget enig Enig Uenig Meget uenig
Ved ikke
Pct.
Alle Mænd Kvinder
What we don't know
How do we:
• motivate consumers to take an interest?
• get consumers to use our webtools?
• make consumers aware of the gap between what they think they know and what they actually know?
What is fair and realistic to expect of consumers ?
• regarding knowledge
• regarding interest
Side 11
Side 12
What we are doing www.PensionsInfo.dk gain an overview of your pension
• Easy to use – log on through your webbank
• Provides an overview of total pension benefits in
– public pensions
– ATP (Labour Market Supplementary Pension Fund)life insurance companies,
– life insurance companies
– pension funds
– civil servant pensions
– banks
Side 13
What we are doing Consumer Plan 2010
• Our focus is to enhance transparency
• Consumer Plan 2010 supersedes the DIA plan from 2006 with 18 initiatves to create openness and transparency.
• Consumer plan 2010 with the following elements:
– Better overview: Consumers will be given better opportunities to compare products and companies
– More clarity: About rules and rights
– Empowering consumers: Projects about financial literacy, motivation and education
Side 14
Consumer Plan 2010 Better overview
• Facts about pensions – a new web tool to compare pension schemes and pension providers
• The pension overview – a standardised resume of annual pension statements given to the customers
• Pension APR (Annual Percentage Rate)
• "Cost-meter"
• Pension terms – standardisation of the most important pension words
Side 15
Consumer Plan 2010 Empowering consumers
Projects about:
• Financial literacy – a study/survey concerning the level of the Danes financial literacy – baseline study
• Motivation – research on what motivates consumers on the financial markets
• Education – a pilot about about ways to strenghten consumers financial literacy by means of education
Side 16
More about motivation
• Lack of motivation = a barrier for consumers to engage actively in pensions
• No motivation – no action
• Our tools receive good evaluations – but are not used a lot
• 3 examples: What can we learn from them?
Side 17
Example 1 - The Jam experiment
• Taste booth in a supermarket
• First experiment: 24 different taste variants
• Second experiment: 6 different taste variants
Side 18
Example 1 - The jam experiment
• Many options attracts attention
• Many options reduces action
Forsikring & Pension | Titel Side 19
Stops Tastes Buys
Many options
60 % 1,5 3 %
Few options
40 % 1,38 30 %
Example 2 - Save More Tomorrow
• SMT raises retirement savings – the employee set aside a part of future salary raises
• Help employees who wish to save more – but lack the will power.
Side 20
• SMT turns something negative to something positive:
– Loss aversion: Participants don't experience lower salary
– Procrastination: Once in, you have to take action to get out
– Self-control: You oblige your self to save later
Example 3 - Electric bills and smileys
• What happend when US consumers received information about the relative size of their bill:
– Above average => reduces consumption
– Below => increases consumption
– Below and use of => unchanged consumption
Forsikring & Pension | Titel Side 21
Summing up motivation
• Free to choose – political buzzwords
– how much choice should consumers with low financial literacy have in complex markets
• Save More Tomorrow – the Danish pension system is paternalistic
– a way to overcome lack of motivation
• The use of norms
– electric bill: People generally like to fit in and do 'the right thing'
Side 22
The road ahead
• How do we motivate consumers?
– Which hurdles are hardest to overcome?
• Which information channels are essential?
– In Denmark we have relative success with the site www.pensionsinfo.dk – you can access it easily through online banking
• How much can we expect from consumers?
– How high should you reach?
– How do we set the goals?
Side 23
The road ahead
• Joint responsibility for increased financial literacy
• Financial sector: Responsible for creating transparent markets and inform consumers in a way they understand.
• Consumers: Responsible for trying to understand
• Politicians ans authorities: Responsible for making room for financial literacy in the educational sector and for creating confidence
Side 24