Hostname: page-component-848d4c4894-wzw2p Total loading time: 0 Render date: 2024-05-12T04:26:25.343Z Has data issue: false hasContentIssue false
  • English
  • Français

Individual pension-related risk propensities: the effects of socio-demographic characteristics and a spousal pension entitlement on risk attitudes

Published online by Cambridge University Press:  03 November 2008

GORDON L. CLARK  and
KENDRA STRAUSS
GORDON L. CLARK
Affiliation:
Centre for the Environment, University of Oxford, UK. Labor and Worklife Program, Harvard Law School, Cambridge, Massachusetts, USA.
KENDRA STRAUSS*
Affiliation:
Centre for the Environment, University of Oxford, UK.
*
Address for correspondence: Kendra Strauss, Oxford University Centre for the Environment, South Parks Road, Oxford OX1 3QY, UK. E-mail: kendra.strauss@ouce.ox.ac.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

The transition from defined-benefit to defined-contribution occupational-pension plans has placed a premium on the participants' or contributors' decision-making competence. Their attitudes to risk and their responses to available investment options can have far-reaching implications for their retirement income. Behavioural research on risk and uncertainty has raised understanding of the limits of individual decision-making, but the social status and demographic characteristics of plan participants may also affect risk perception and pension choices. By studying a random sample of the British adult population, this paper explores the significance of socio-demographic characteristics for pension-related risk attitudes. It is demonstrated that pension-plan participants do not appear to understand the risks associated with different types of retirement savings and pension plans. The paper also shows that the gender, age and income of plan participants can give rise to distinctive risk propensities, and that marital status and, in particular, whether a spouse also has a pension can also have significant consequences for household risk preferences. These results have implications for those segments of the population that are disadvantaged in the labour market. Employer-provided pensions' education and information programmes may have to be more basic and more closely tailored to the social status of pension plan participants than hitherto assumed or hoped.

Keywords

Genderpension risksocio-demographic statusspousal entitlements
Type
Research Article
Information
Ageing & Society , Volume 28 , Issue 6 , June 2008 , pp. 847 - 874
Copyright
Copyright © 2008 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amemiya, T. 1981. Qualitative response models: a survey. Journal of Economic Literature, 19, December, 1483–536.Google Scholar
Adlrich, J. H. and Nelson, F. D. 1983. Linear Probability, Logit, and Probit Models. Quantitative Applications in the Social Sciences 07–045, Sage, London.Google Scholar
Bajtelsmit, V. L. 2006. Gender, the family, and economy. In Clark, G. L., Munnell, A. H. and Orszag, J. M. (eds) The Oxford Handbook of Pensions and Retirement Income. Oxford University Press, Oxford, 121–40.Google Scholar
Bajtelsmit, V. L., Bernasek, A. and Jianakoplos, N. A. 1999. Gender differences in defined contribution pension decisions. Financial Services Review, 8, 1–10.Google Scholar
Barron, J. 2000. Thinking and Deciding. Third edition, Cambridge University Press, Cambridge.Google Scholar
Bellamy, K. and Rake, K. 2005. Money, Money, Money: Is it Still a Rich Man's World? Fawcett Society, London.Google Scholar
Benartzi, S. and Thaler, R. 2002. How much is investor autonomy worth? Journal of Finance, 57, 4, 1593–616.CrossRefGoogle Scholar
Bernasek, A. and Shwiff, S. 2001. Gender, risk and retirement. Journal of Economic Issues, 35, 2, 345–56.Google Scholar
Bernheim, D. 1998. Financial illiteracy, education and retirement saving. In Mitchell, O. S. and Schieber, S. (eds) Living with Defined Contribution Pensions. University of Pennsylvania Press, Philadelphia, Pennsylvania, 38–68.Google Scholar
Bertrand, M., Karlan, D., Mullainathan, S., Shafir, E. and Zinman, J. 2005. What's Psychology Worth? A Field Experiment in the Consumer Credit Market. Working Paper 11892, National Bureau of Economic Research, Cambridge, Massachusettss.CrossRefGoogle Scholar
Carroll, C. D. 2000. Portfolios of the Rich. Working Paper 7826, National Bureau of Economic Research, Cambridge, Massachusettss.Google Scholar
Caudill, S. 1988. An advantage of the linear probability model over probit or logit. Oxford Bulletin of Economics and Statistics, 50, 4, 425–7.CrossRefGoogle Scholar
Choi, J. J., Laibson, D. and Madrian, B. C. 2004. Plan Design and 401(k) Savings Outcomes. Working Paper 10486, National Bureau of Economic Research, Cambridge, Massachusettss.CrossRefGoogle Scholar
Choi, J. J., Laibson, D. and Madrian, B. C. 2005. $100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans. Working Paper 11554, National Bureau of Economic Research, Cambridge Massachusetts.Google Scholar
Choi, J. J., Laibson, D., Madrian, B. C. and Metrick, A. 2001. Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance. Working Paper 8655. National Bureau of Economic Research, Cambridge, Massachusettss.Google Scholar
Clark, G. L. 2006. The crisis of the UK occupation pension system. In Pemberton, H., Thane, P. and Whiteside, N. (eds) Britain's Pensions Crisis: History and Policy. Oxford University Press, Oxford, 145–68.Google Scholar
Clark, G. L., Caerlewy-Smith, E. and Marshall, J. C. 2006. Pension fund trustee competence: decision making in problems relevant to investment practice. Journal of Pension Economics and Finance, 5, 1, 91–110.Google Scholar
Clark, G. L., Caerlewy-Smith, E. and Marshall, J. C. 2007. The consistency of UK pension fund trustees' decision-making. Journal of Pension Economics and Finance, 6, 1, 67–86.Google Scholar
Clark, G. L., Caerlewy-Smith, E. and Marshall, J. C. 2008. Solutions to the asset allocation problem by informed respondents: the size-of-bet and the 1/n heuristic. Risk Management and Insurance Review (forthcoming).Google Scholar
Clark, G. L. and Monk, A. 2007 a. The ‘crisis’ in defined benefit corporate pension liabilities. Pensions: An International Journal, 12, 1, 43–54 and 12, 2, 68–81.CrossRefGoogle Scholar
Clark, G. L. and Monk, A. 2007 b. Conceptualizing the defined benefit pension promise: implications from a survey of expert opinion. Benefits Quarterly (forthcoming).Google Scholar
Clark, G. L. and Knox-Hayes, J. 2007. Mapping UK pension benefits and the intended purchase of annuities in the aftermath of the 1990 stock market bubble. Transactions, Institute of British Geographers, 32, 4, 539–55.Google Scholar
Compton, J. and Pollack, R. A. 2004. Why are Power Couples Increasingly Concentrated in Large Metropolitan Areas? Working Paper 10918, National Bureau of Economic Research, Cambridge, Massachusetts.Google Scholar
Costa, D. L. and Kahn, M. E. 1999. Power Couples: Changes in the Locational Choice of the College Educated, 1940–1990. Working Paper 7109. National Bureau of Economic Research, Cambridge, Massachusetts.Google Scholar
Cronqvist, H. and Thaler, R. 2004. Design choices in privatized social-security systems: learning from the Swedish experience. American Economic Review, 94, 2, 424–8.Google Scholar
Cutler, N. E. 1997. The false alarms and blaring sirens of financial literacy: middle-agers' knowledge of retirement income, health finance, and long-term care. Generations: Journal of the American Society on Aging, 21, 34–40.Google Scholar
Department for Work and Pensions 2006. Personal Accounts: A New Way to Save. Cm 6975. Stationery Office, London.Google Scholar
Department for Work and Pensions 1998. A New Contract for Welfare: Partnership in Pensions. Department for Work and Pensions, London.Google Scholar
Dolvin, S. D. and Templeton, W. K. 2006. Financial education and asset allocation. Financial Services Review, 15, 133–49.Google Scholar
Dorn, D. and Huberman, G. 2005. Talk and action: what individual investors say and what they do. Review of Finance, 9, 437–81.Google Scholar
Friedberg, L. and Webb, A. 2006. Determinants and Consequences of Bargaining Power in Households. Working Paper 12367, National Bureau of Economic Research, Cambridge, Massachusetts.Google Scholar
Gigerenzer, G. 2004. The irrationality paradox. Brain and Behavioral Sciences, 27, 3, 336–8.CrossRefGoogle Scholar
Ginn, J. and Arber, S. 1991. Gender, class and income inequalities in later life. British Journal of Sociology, 42, 3, 369–96.Google Scholar
Ginn, J. and Arber, S. 2001. A colder pension climate for British women. In Ginn, S., Street, D. and Arber, S. (eds), Women, Work and Pensions : International Issues and Prospects. Open University Press, Buckingham,44–66.Google Scholar
Hallahan, T. A., Faff, R. W. and McKenzie, M. D. 2004. An empirical investigation of personal financial risk tolerance. Financial Services Review, 13, 57–78.Google Scholar
Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H., McElreath, R., Alvard, M., Barr, A., Ensminger, J., Smith Henrich, N., Hill, K., Gil-White, F., Gurven, M., Marlowe, F. W., Patton, J. Q. and Tracer, D. 2005. ‘Economic man’ in a cross-cultural perspective: behavioural experiments in 15 small-scale societies. Behavioural and Brain Sciences, 28, 6, 795–815.Google Scholar
Hollis, M. 1996. Reason in Action: Essays in the Philosophy of Social Science. Cambridge University Press, Cambridge.Google Scholar
Iyengar, S. S., Jiang, W. and Huberman, G. 2004. How much choice is too much? Determinants of individual contributions in 401K retirement plans. In Mitchell, O. S. and Utkus, S. P. (eds) Pension Design and Structure: New Lessons from Behavioral Finance. Oxford University Press, Oxford, 83–97.CrossRefGoogle Scholar
Kahneman, D. 2003. Maps of rationality: psychology for behavioural economics. American Economic Review, 93, 5, 1449–75.Google Scholar
Kahneman, D., Schwartz, A., Thaler, R. and Tversky, A. 1997. The effect of myopia and loss aversion on risk taking: an experimental test. Quarterly Journal of Economics, 112, 2, 647–61.Google Scholar
Kahneman, D. and Tversky, A. 1979. Prospect theory: an analysis of decisions under risk. Econometrica, 47, 2, 263–91.Google Scholar
Kempson, E., Whyley, C., Caskey, J. and Collard, S. 2000. In or Out? Financial Exclusion: A Literature and Research Review. Financial Services Authority, London.Google Scholar
Krueger, J. I. and Funder, D. C. 2004. Towards a balanced social psychology: causes, consequences, and cures for the problem-seeking approach to social behaviour and cognition. Behavioural and Brain Sciences, 27, 3, 313–28.Google Scholar
Legros, F. 2006. Life-cycle options and preferences. In Clark, G. L., Munnell, A. H. and Orszag, J. M. (eds) The Oxford Handbook of Pensions and Retirement Income. Oxford University Press, Oxford, 183–200.Google Scholar
Leyshon, A., Burton, D., Knights, D., Alferoff, C. and Signoretta, P. 2004. Towards an ecology of retail financial services: understanding the persistence of door-to-door credit and insurance providers. Environment and Planning A, 36, 4, 625–45.CrossRefGoogle Scholar
Leyshon, A., Burton, D., Knights, D., Alferoff, C. and Signoretta, P. 2006. Walking with moneylenders: the ecology of the UK home-collected credit industry. Urban Studies, 43, 1, 161–86.Google Scholar
Leyshon, A., Thrift, N. J. and Pratt, J. 1998. Reading financial services: texts, consumers, and financial literacy. Environment and Planning D: Society and Space, 16, 1, 29–55.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. S. 2005. Financial literacy and planning: implications for retirement wellbeing. Working Paper 46/05, Center for Research on Pensions and Welfare Policies, Moncalieri, Italy. Available online at http://cerp.unito.it [Accessed 19 March 2007].Google Scholar
McDowell, L. 2004. Work, workfare, work/life balance and an ethic of care. Progress in Human Geography, 28, 2, 145–63.Google Scholar
Milligan, K. 2004. Life-Cycle Asset Accumulation and Allocation in Canada. Working Paper 10860, National Bureau of Economic Research, Cambridge, Massachusetts.Google Scholar
Mitchell, O. S. and Utkus, S. P. 2004. Lessons from behavioral finance for pension plan design. In Mitchell, O. S. and Utkus, S. P. (eds) Pension Design and Structure: New Lessons from Behavioural Finance. Oxford University Press, Oxford, 3–42.Google Scholar
Munnell, A. H. 2006. Employer-sponsored plans: the shift from defined benefit to defined contribution. In Clark, G. L., Munnell, A. H. and Orszag, J. M. (eds) The Oxford Handbook of Pensions and Retirement Income. Oxford University Press, Oxford, 359–80.Google Scholar
Munnell, A., Soto, M., Libby, J. and Princivalli, J. 2006. Investment Returns: Defined Benefit vs. 401(k) Plans. Issue in Brief, Centre for Retirement Research, , Boston, Massachusetts.Google Scholar
Organisation for Economic Cooperation and Development (OECD) 2004. Global Pension Statistics Project: Measuring the Size of Private Pensions with an International Perspective. Financial Market Trends 87, OECD, Paris.Google Scholar
Papke, L. 1998. How are participants investing their accounts in participant-directed individual account pension plans? American Economic Review, 88, 2, 212–6.Google Scholar
Pensions Commission 2004. Pensions: Challenges and Choices. First Report of the Pensions Commission, Stationery Office, London.Google Scholar
Pensions Commission 2005. A New Pension Settlement for the Twenty-First Century. Second Report of the Pensions Commission, Stationery Office, London.Google Scholar
Poterba, J., Rauh, J., Venti, S. F. and Wise, D. 2006. Lifecycle Asset Allocation Strategies and the Distribution of 401(k) Retirement Wealth. Working Paper 11974, National Bureau of Economic Research, Cambridge, Massachusetts.Google Scholar
Scholz, J. K., Seshadri, A. and Khitatrakun, S. 2004. Are Americans Saving ‘Optimally’ for Retirement? Working Paper 10260, National Bureau of Economic Research, Cambridge, Massachusetts.CrossRefGoogle Scholar
Simon, H. A. 1956. Rational choice and the structure of the environment. Psychological Review, 63, 2, 129–38.Google Scholar
Stanovich, K. E. and West, R. E. 2000. Individual differences in reasoning: implications for the rationality debate. Behavioural and Brain Sciences, 23, 5, 645–65.Google Scholar
Strauss, K. 2007. Re-engaging with Rationality: The Context of UK Pension Decision-Making. Working Paper in Employment, Work and Finance 06–09, Oxford University Centre for the Environment, Oxford.Google Scholar
Strauss, K. 2008. Re-engaging with rationality in economic geography: behavioral approaches and the importance of context in decision-making. Journal of Economic Geography, 8, 2, 137–56.CrossRefGoogle Scholar
Sundén, A. E. and Surette, B. 1998. Gender differences in the allocation of assets in retirement savings plans. American Economic Review, 88, 2, 207–11.Google Scholar
Thaler, R. and Sunstein, C. 2003. Libertarian paternalism. American Economic Review, 93, 2, 175–97.Google Scholar
Tversky, A. and Kahneman, D. 1991. Loss aversion in riskless choice: a reference dependent model. Quarterly Journal of Economics, 106, 4, 1039–61.Google Scholar
Weber, E. W., Balis, A.-R. and Betz, N. E. 2002. A domain-specific risk-attitude scale: measuring risk perceptions and risk behaviours. Journal of Behavioral Decision Making, 15, 4, 263–90.Google Scholar