A research report published by the National Bureau of Economic Research (NBER) explains that, in an effort to increase transparency, the German public pension authority implemented a reform that has changed the way information about retirement savings is provided. In particular, since 2004, the pension authority has sent out annual letters giving detailed and comprehensible information about the pension system in general, and individual expected pension payments.
The letters inform recipients about their individual date of statutory retirement and the pension payments they can currently expect upon retirement. The letters also nudge people to save more through private retirement accounts.
Researchers used German tax return data from administrative records to study the effect of these informational letters on private retirement savings, and the results indicate that receiving the letter increases contributions to a private retirement account. The effect was fairly sizable—about 40 euros per year at the higher-age cutoff and 20 euros per year at the lower-age cutoff, representing 33% and 16%, respectively, of the average age-group-specific post-reform savings.
The researchers say findings indicate that the effect of the letters is smaller, yet still significant, at the lower-age cutoff compared with the higher; that is, retirement contributions of younger individuals showed less change in response to the information. This may suggest either that younger individuals fail to plan far ahead or that they have insufficient income to save through private retirement accounts, the researchers contend.