Supporting decision-making in retirement planning: Do diagrams on pension benefit statements help?

Research Retrieved: June 2018
Retrieve the paper from ESRI


In order to make a substantiated decision on whether and how much to save for retirement, people must understand the pension fund scheme and the consequences of savings decisions. Former studies have found that pension knowledge is low, and as such, so are contribution rates and additional savings for retirement. Simplifying information with the help of diagrams might be one solution to increase pension knowledge and, ultimately, to motivate better savings decisions. This paper studies whether participants better recall and comprehend information when it is displayed visually, such as who contributes how much or the correlation between savings and pension benefits. Furthermore, the authors look at whether people who understand the pension benefit statement are more likely to advise increasing the contribution rate and whether the rationale to do so is different from the rationale of people who have not seen the diagrams.

Key Findings

  • Diagrams do not improve the overall recall and comprehension scores; participants perform better on the question that tests the specific information of the diagram, but then do worse on the other questions.
  • Participants who saw the diagram displaying how pension benefits grow with higher contributions advised to increase the contribution rate.
  • A higher comprehension score increased the likelihood to advise a higher contribution rate, but the effect is insignificant once one controls for the level of education.
  • When giving the rationale behind their advice, participants focused on the content of the diagram they saw: a) Participants were more likely to cite predicted income or higher investment returns when they saw the diagram that displays the effect of higher contributions; b) Participants were more likely to cite tax relief or matching contributions when they saw the diagram that displays how contributions are built up.


Practical Relevance

The study shows that even simple graphs might not lead to pension fund participants’ improved understanding. However, graphs seem to lead decision-makers in the right direction (at least the decisions resemble the decisions taken by people who understand more of pensions). Further simplifications of information concerning the consequences of higher contributions, for example in the form of graphs that are tested more rigorously, might further increase contributions.