Retirement Drawdown Defaults: The Role of Implied Endorsement
By Jennifer Alonso-García (University of New South Wales (UNSW) – ARC Centre of Excellence in Population Ageing Research (CEPAR)), Hazel Bateman (University of New South Wales (UNSW) – School of Actuarial Studies, Centre for Pensions and Superannuation), Johan Bonekamp (Tilburg University – Department of Econometrics & Operations Research), Ralph Stevens (CPB Netherlands Bureau of Economic Policy Analysis; CEPAR)
This paper explores whether implied endorsement can serve as an explanation for the stickiness of retirement drawdown defaults. Using an experimental survey fielded in both the Netherlands and Australia, we analyse the extent to which individuals stick to default drawdowns and whether they perceive government prescribed minimum withdrawals from their pension wealth as implicit advice from government (“government knows best”) or recommendations from peers (“what most people do”). We find that vulnerable groups, such as those with low financial resources and pension capability, are more likely to find implied endorsement important. However, those who are overconfident about their capability find it less important and are susceptible to adverse choices. As expected, the peer effect is reduced for those with less opportunity to participate in a social network.
Source: SSRN
