27 Oct 2022

Identifying pension gaps in time even with low financial literacy

A joint study by SAFE and ZEW Mannheim shows the positive effects of having a digital pension overview that takes all three pillars of old-age provision into account

In order to be able to realistically assess how high one’s pension will be in old age, it is not enough to simply look at the annual statutory pension information. Digital platforms, such as those that already exist in Sweden or the Netherlands, where one can view one’s statutory, occupational and private pension income, can help to get a more accurate picture.

Researchers from the Leibniz Institute for Financial Research SAFE and ZEW Mannheim have conducted a study to investigate the effects such a digital platform can have on retirement planning and savings behaviour. They conclude that a simple digital overview can especially benefit people with low financial literacy.

“The results from our field study show that it is well worth introducing national digital pension overview platforms,” concludes co-author Andreas Hackethal from the SAFE Institute, where he heads the “Pension Finance Lab” project. In the survey, three-quarters of the respondents stated that the digital platform modelled for the study helped them a lot in planning their pension provision.

Simplified pension overview influences savings behaviour

In addition, researchers Tabea Bucher Koenen (ZEW), Andreas Hackethal, Johannes Kasinger and Christine Laudenbach (all from SAFE) found that users of the digital pension overview adjusted their savings behaviour. This effect is particularly evident in one group: “People with little financial education who used our tool had an average of 3,354 euros more in their savings accounts after the experiment than the control group,” says Tabea Bucher-Koenen, head of the Research Unit “Pensions and Sustainable Financial Markets” at ZEW.

In spring 2017, 14,267 customers of two large German banks were invited to participate in the experiment. In the end, 747 individuals took part in the experiment, 420 of whom used the digital platform and completed three surveys. The control group consisted of 327 people who did not have access to the tool and were surveyed twice. For the digital pension overview, the research team only used the information provided by the customers and calculated the expected pension amount on this basis.

Figure 1: The figure shows an example of a digital overview as it was provided to the study participants.

It is noteworthy that a large proportion of the survey participants are male, have a good financial education and are likely to receive a large pension. “The composition of respondents shows that it will be challenging to reach especially those households with limited financial knowledge and little interest in retirement planning,” says Christine Laudenbach, director of “Household Finance” at SAFE. “A simple and easily accessible pension overview can help compensate for a lack of financial education in households and is an opportunity to close potential pension gaps,” adds Hackethal.

The research team therefore suggests that such a digital pension overview should be designed to be as simple and user-friendly as possible. To this end, the data upload must be largely automated, and the user interface must meet the standards of modern mobile apps. Currently, a team led by Andreas Hackethal is developing a sample app with funding from the Federal Ministry of Economic Affairs and Climate Action and the Hessian Ministry for Digital Strategy and Development, with the aim of providing concrete impetus for both the pension market and academia.

Download SAFE Working Paper No. 362 here

Scientific Contact

Prof. Dr. Andreas Hackethal

Coordinator Pension Finance Lab