Motivated Saving: The impact of Projections on Retirement Saving

Abstract

How much money do you need for your retirement? The implications of current balance information for retirement provision are considerably difficult for many of us to grasp or anticipate. A long tradition of using psychological insights to improve savers’ engagement with their pensions has led to major improvements in savings rates and participation. In this work we study how balances and/or income projections motivate the voluntary savings intentions of pension plan participants. We report data from a large scale field experiment (N = 30,546) and two on-line panel experiments (N= 1,615). Both sets of data reveal that income projections - which indicate how much money participants will have per-year in retirement - increase saving rates relative to balance information alone. The field experiment reveals additional effects of income projections on member-engagement (e.g., advice-seeking) and investment choices. We discuss the results in terms of the format and reference-dependent nature of the perception of retirement wealth and draw out implications for consumers’ financial decision-making.

About the speaker

Ben Newell is Professor of Cognitive Psychology and Deputy Head of the School of Psychology at the University of New South Wales, Sydney, Australia. His research focuses on the cognitive processes underlying judgment, choice and decision making and the application of this knowledge to environmental, medical, financial and forensic contexts. He has published over 100 journal articles and book chapters and is the primary author of the leading text, Straight Choices: The psychology of decision making ­ - a book described by Nobel Prize winner Daniel Kahneman as “a rare combination - an enjoyable read that beginners will like and a serious text that scholars will study”. Ben has worked with industry and government partners on projects including climate change communication, retirement wealth-planning and child protection. His work adopts experimental and computational methods to assess how people make decisions, and casts a critical eye on bold claims about the powers of ‘unconscious’ thinking. His work has been discussed in various media outlets including TIME Magazine, The Guardian, BBC, ABC and WIRED Magazine. Ben writes regularly for the on-line newspaper The Conversation on topics including risk-taking, ‘nudging’ behaviour, intuition, and the psychology of climate change. He is currently an Associate Editor at Psychonomic Bulletin & Review and on the editorial boards of Decision, Judgment and Decision Making, and Journal of Behavioural Decision Making. He is also a member of the Academic Advisory Panel of the Behavioural Economics Team of the Australian Government.