1. Pensions, financial literacy & motivation
Anne Seiersen
Danish Insurance Association
EGFE 4th of June 2010

2. Agenda
Pensions, financial literacy & motivation
What we
What we
don't
know
know
What we The
are road
doing ahead
Side 2

3. What we know
about pensions and financial literacy
Report: Financial Literacy and Transparency Initiatives
and Tools in Life and Pensions
• The knowledge on pension issues is low among
consumers
• Politicians and consumer associations ask for more,
more detailed and more simplified information.
• All research and surveys show that the more the
consumers know the more satisfied they are with
their pension scheme and their pension provider
• But consumers are not using the numerous
information sites and web tools developed
Side 3

4. What we know
about pensions and financial literacy
Find the report here:
www.forsikringogpension.dk/Analyser/Documents/
towers_perrin_report_skaerm.pdf
Side 4

5. Findings in the report
• The pension landscape is very diverse
• The way financial literacy questions are prioritised
and dealt with depends on the general pension
agenda
• Changes in pension systems, auto-enrollment, the
relative weight of the three pillars of retirement
income.
• Best practices – well known to this audience, but
not in Denmark
Side 5

6. Basic facts about the Danish pension
model
• flat rate public pension with a supplement
depending on other income – poverty prevention
• occupational pensions - replacement
– mandatory by collective agreement
– covering 80-90 per cent of labour force
– replacement rates in combination with public
pensions are 60-80 per cent
– defined contribution, contribution rates of 12-18
per cent of the salary
– retirement, disability, death, critical illness
• individual pensions - flexibility
Side 6

7. What we know
• Most consumers do not know or care about their
pensions
• Many consumers do not try to understand
• To what degree are you interested in topics related
to pensions?
Side 7

8. What we know
• 90 per cent are in (self perceived) good control of
their personal finances
• All in all I think I have good control of my personal
finances
Pct.
60
50
40
30
20
10
0
Meget enig Enig Uenig Meget uenig Ved ikke
Side 8 Alle Mænd Kvinder

9. What we know
• But more than 1/3 are unable to cover a minor
unforeseen expense
• I always have enough money saved to buy for
example a new refrigerator (in cash) in case the old
one breaks down
Pct.
35
30
25
20
15
10
5
0
Meget enig Enig Uenig Meget uenig Ved ikke
Side 9 Alle Mænd Kvinder

10. What we know
• …and just half have in the last couple of years
examined, if they can get better (i.e pay lower)
interests on their loans
Pct.
35
30
25
20
15
10
5
0
Meget enig Enig Uenig Meget Ved ikke
uenig
Side 10 Alle Mænd Kvinder

11. What we don't know
How do we:
• motivate consumers to take an interest?
• get consumers to use our webtools?
• make consumers aware of the gap between what
they think they know and what they actually know?
What is fair and realistic to expect of consumers ?
• regarding knowledge
• regarding interest
Side 11

12. What we are doing
www.PensionsInfo.dk
gain an overview of your pension
• Easy to use – log on through your webbank
• Provides an overview of total pension benefits in
– public pensions
– ATP (Labour Market Supplementary Pension
Fund)life insurance companies,
– life insurance companies
– pension funds
– civil servant pensions
– banks
Side 12

13. Side 13

14. What we are doing
Consumer Plan 2010
• Our focus is to enhance transparency
• Consumer Plan 2010 supersedes the DIA plan from
2006 with 18 initiatves to create openness and
transparency.
• Consumer plan 2010 with the following elements:
– Better overview: Consumers will be given better
opportunities to compare products and
companies
– More clarity: About rules and rights
– Empowering consumers: Projects about financial
literacy, motivation and education
Side 14

15. Consumer Plan 2010
Better overview
• Facts about pensions – a new web tool to compare
pension schemes and pension providers
• The pension overview – a standardised resume of
annual pension statements given to the customers
• Pension APR (Annual Percentage Rate)
• "Cost-meter"
• Pension terms – standardisation of the most
important pension words
Side 15

16. Consumer Plan 2010
Empowering consumers
Projects about:
• Financial literacy – a study/survey concerning the
level of the Danes financial literacy – baseline study
• Motivation – research on what motivates consumers
on the financial markets
• Education – a pilot about about ways to strenghten
consumers financial literacy by means of education
Side 16

17. More about
motivation
• Lack of motivation = a barrier for consumers to
engage actively in pensions
• No motivation – no action
• Our tools receive good evaluations – but are not
used a lot
• 3 examples: What can we learn from them?
Side 17

18. Example 1 - The Jam experiment
• Taste booth in a supermarket
• First experiment: 24 different taste variants
• Second experiment: 6 different taste variants
Side 18

19. Example 1 - The jam experiment
• Many options attracts attention
• Many options reduces action
Stops Tastes Buys
Many 60 % 1,5 3%
options
Few 40 % 1,38 30 %
options
Side 19 Forsikring & Pension | Titel

20. Example 2 - Save More Tomorrow
• SMT raises retirement savings – the employee set
aside a part of future salary raises
• Help employees who wish to save more – but lack
the will power.
• SMT turns something negative to
something positive:
– Loss aversion: Participants don't
experience lower salary
– Procrastination: Once in, you have to
take action to get out
– Self-control: You oblige your self to
save later
Side 20

21. Example 3 - Electric bills and smileys
• What happend when US consumers received
information about the relative size of their bill:
– Above average => reduces consumption
– Below => increases consumption
– Below and use of  => unchanged consumption
Side 21 Forsikring & Pension | Titel

22. Summing up
motivation
• Free to choose – political buzzwords
– how much choice should consumers with low financial
literacy have in complex markets
• Save More Tomorrow – the Danish pension system
is paternalistic
– a way to overcome lack of motivation
• The use of norms
– electric bill: People generally like to fit in and do 'the
right thing'
Side 22

23. The road ahead
• How do we motivate consumers?
– Which hurdles are hardest to overcome?
• Which information channels are essential?
– In Denmark we have relative success with the
site www.pensionsinfo.dk – you can access it
easily through online banking
• How much can we expect from consumers?
– How high should you reach?
– How do we set the goals?
Side 23

24. The road ahead
• Joint responsibility for increased financial literacy
• Financial sector: Responsible for creating
transparent markets and inform consumers in a
way they understand.
• Consumers: Responsible for trying to understand
• Politicians ans authorities: Responsible for
making room for financial literacy in the
educational sector and for creating confidence
Side 24