Optimism and Pension Choice

Abstract

This article investigates the relationship between financial optimism and individuals’ pension choice in the UK. The authors used a comprehensive framework for measuring financial optimism and found that the firms that optimists work for are significantly less likely to have pension schemes for their employees. Optimists on average join employers’ pension schemes later than less optimistic individuals. Even when pension schemes are available, optimists are less likely to be members of these schemes. Financial optimism is linked to a lower probability of investing in private pensions. Optimists receive less pension income and are more likely to be working during their 60s and 70s. Financial optimism can trigger a non-participative choice in pension schemes. This article raises awareness among individuals on the role financial optimism plays in affecting their pension choice, either directly through an individual’s attitude towards risk when selecting pension schemes or indirectly via their choice of employment.