Benedict Dellaert and Bas Donkers awarded a 250k Netspar grant

This thinktank and knowledge network is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

Individual Pension Choices in Uncertain Times: Advancing Digital Support for Risky Pension Decisions

Pension scheme members are increasingly being confronted with uncertainty surrounding their pension and are given greater responsibility for ensuring they have a good pension. Under the new pension agreement, pension fund administrators are also facing new challenges, partly because the decisions they take in terms of risk versus returns for pension investments translate more directly into differences in the retirement incomes that members receive. In their project Individual Pension Choices in Uncertain Times: Advancing Digital Support for Risky Pension Decisions, Prof. Benedict Dellaert and Prof. Bas Donkers are investigating three important aspects related to a better understanding and support of pension decisions when it concerns risks.

The first is the preferences that pension scheme members have in terms of risk versus returns in pension investments. Dellaert and Donkers are focusing on 1) Individuals who often have several investments for their retirement income, and find it difficult to know the impact of investment decisions on the risk and return of the overall retirement income; and 2) Risk and return projections for pension investments and, in turn, projections for pension incomes that are not fixed before and after retirement. Dellaert and Donkers will be examining the impact of a more integrated, interactive approach to support members in both respects.

Second, Dellaert and Donkers will study how pension scheme members evaluate the value of flexibility if future pension incomes are uncertain. As uncertainty about pensions increases, individuals will need to rely more on flexible retirement plans, such as retiring later, high/low schemes, or continuing to invest beyond the legal retirement age. Not much is known about how individuals evaluate the real option value of this flexibility.

Thirdly, pension scheme members’ goals are important drivers of decisions on pension outcomes. Because of the uncertainty surrounding how much pension they will receive and when they can retire, individuals have to make difficult trade-offs between their various goals, such as retiring earlier or having higher pension benefits. Dellaert and Donkers are examining members’ pension goals and how activating these targets affects their pension decisions.

Societal relevance

In this research project, Benedict Dellaert and Bas Donkers will collaborate with partners from the pension industry (e.g., Achmea, ASR, and APG) who are keen to develop new knowledge on how pension fund participants can best be supported in their decision making. The aim is also to reach out to policymakers and regulators (e.g., AFM, DNB) who have also expressed a strong interest in developing a better understanding of what type of digital support is most beneficial for individual pension decision-makers.