Do people really want freedom of choice? Assessing preferences of pension holders

Abstract

AbstractReforms of private pension plans across the world are involving the introduction of more options for pension holders to make choices to suit their preferences. Freedom of choice is not, however, a unidimensional concept despite being commonly perceived as such by policymakers. Using a unique panel survey among Dutch employees, we offer a refined typology of preferences with respect to freedom of choice. For most pension contract issues—level of pension savings, investment choice, and risk coverage—a minority (14–26%) of participants value individual freedom of choice, whereas most would either prefer to let their pension fund make the decisions, or they favor a mixed model whereby they have the option to exercise individual choice but are not obligated to take this option, or they are simply indifferent with respect to how their pension contract is designed and financed. Pension holders who distrust their pension fund or who do not express solidarity with other participants are more likely to prefer freedom of choice than those who feel a high level of solidarity and have a high level of trust in their pension fund.