Better Communications = Better Savings?
Could better communications about retirement income boost retirement savings? A new study finds some intriguing results.
“Do Savings Increase in Response to Salient Information about Retirement and Expected Pensions?
” looked at the impact of a 2004 reform move by the German pension authority started to send out annual letters that informed about the pension systems and provided personalized information about (expected) future pension payments. “These letters presumably increased the level of information about pensions and made the issue of retirement savings more salient, motivating us to hypothesize that contributions to a private retirement account are affected by the letters.”
In fact, the researchers did find that the letters increased private retirement savings, and that the effects “are fairly sizable and persistent over several years.”
There were, however, some qualifying factors:
- The program took a couple of years to take effect, something the researchers attributed either to a boost in the pensions themselves, or perhaps more likely, that it takes time for human behavior to change.
- The researchers also found evidence that the communications had a negative effect on charitable donations, “suggesting that part of the savings response crowds out donations.” Indeed, they go on to state that “a substantial part of the increase in savings is due to a crowding out of charitable donations.”
The letters seemed to lead to an increase in working hours, which the researchers found consistent with the fact that most households overestimated their pension benefits before they got the new letters, and working more was one way both to increase their pension amount, as well as to finance additional retirement savings.
On the other hand, lower-income households reacted less than others, though the researchers weren’t able to ascertain whether that was because they couldn’t afford to save more, or because the communications weren’t as effective for them.
Additionally, younger individuals were also found to be less responsive to the information. “This may either suggest that younger individuals, who are more than 30 years away from retiring, do not plan far ahead, or they do not have sufficient levels of income to save through private retirement accounts….”
Finally, it’s worth acknowledging again that this study dealt with Germans and communications explaining what even the researchers acknowledge is a complex German pension plan. Consequently, and while we’re all human beings, there are certain cultural distinctions and biases and differences in retirement systems and expectations that can complicate the transference of findings from one system to another, such as the study about Danish workers
several years back.