Behavioral Finance and Pension Decisions

An extensive literature review and a focused analysis on how framing effects, financial literacy, self-control, and loss aversion affect pension decisions.

The retirement landscape is rapidly changing with pension savings shifting to Defined Contribution plans. This means that individuals are increasingly confronted with more responsibilities to make decisions about their retirement savings. They are however, neither qualified enough, nor always willing to make such difficult decisions.

This dissertation by Lampros Romanos, Erasmus University Rotterdam, draws on Transamerica Center for Retirement Studies' 15th Annual US Retirement Survey to examine the impact of framing effects, financial literacy, self-control and loss aversion on those decisions.

The research finds strong framing and anchoring effects on the match threshold of a matching contribution feature within 401(k) or similar plans.

Moreover, the findings suggest that financial literacy cannot significantly mitigate these framing effects.

Lastly, this paper shows that commitment devices, such as having multiple savings accounts, can significantly increase ‘outside of work’ savings for retirement.