Do People Really Want Freedom of Choice?

Assessing Preferences of Pension Fund Participants

Reforms in private pension plans across the world are opening up more options for pension participants to make choices to suit their preferences. Freedom of choice is however not a unidimensional concept as it is commonly perceived by policy makers. People can value both the freedom to choose as well as the freedom not to choose This observation can have far-reaching implications for pension policy design.

By using a unique panel survey among Dutch employees we are able to offer a more refined typology of preferences with respect to the freedom to choose. For most pension contract issues - level of pension savings, investment choice, risk coverage - a minority (14-26 %) values individual freedom of choice, whereas most would like to let their pension fund make the decisions, or favor a mixed model – having choice but not necessarily use this freedom - or are simply indifferent with respect to how their pension contract is designed and financed. Employees who distrust their pension fund or who do not express solidarity with other pension fund participants are far more likely to prefer freedom of choice compared to those who have a high level of solidarity and high level of trust in their pension fund.

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