Information About Expected Retirement Income Could Increase Savings

Researchers found that letters provided to individuals in Germany about their expected pensions led them to increase their private retirement savings.

Research suggests that information about expected retirement income can nudge individuals to increase their retirement savings.

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 which changed the way information about retirement savings are provided.  In particular, as of 2004 the pension authority started to send out annual letters which provide detailed and comprehensible information about the pension system in general and individual expected pension payments.

The letters inform recipients about the individual date of statutory retirement and the pension payments that they can currently expect upon retirement. The letters also nudge individuals to save more through private retirement accounts.

Researchers used German tax return data from administrative records to study the effect of information 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 EUR per year at the higher age cutoff and 20 EUR per year at the lower cutoff, representing 33% and 16%, respectively, of the average age-group specific post-reform savings. 

The researchers note that findings indicate that the letter effects are smaller, yet still significant, at the lower age cutoff compared to the older one; that is, retirement contributions of younger individuals are less responsive to the information. They contend this may either suggest that younger individuals, who are more than 30 years away from retiring, do not plan far ahead, or they do not have sufficient levels of income to save through private retirement accounts.

The research report may be requested from