Financial Literacy and Transparency Initiatives and Tools in Life and Pensions

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Financial Literacy and Transparency Initiatives and Tools in Life and Pensions

  1. 1. Pensions, financial literacy & motivationAnne SeiersenDanish Insurance AssociationEGFE 4th of June 2010
  2. 2. Agenda Pensions, financial literacy & motivation What we What we dont know know What we The are road doing aheadSide 2
  3. 3. What we know about pensions and financial literacy Report: Financial Literacy and Transparency Initiatives and Tools in Life and Pensions •  The knowledge on pension issues is low among consumers •  Politicians and consumer associations ask for more, more detailed and more simplified information. •  All research and surveys show that the more the consumers know the more satisfied they are with their pension scheme and their pension provider •  But consumers are not using the numerous information sites and web tools developedSide 3
  4. 4. What we know about pensions and financial literacy Find the report here: www.forsikringogpension.dk/Analyser/Documents/ towers_perrin_report_skaerm.pdfSide 4
  5. 5. Findings in the report •  The pension landscape is very diverse •  The way financial literacy questions are prioritised and dealt with depends on the general pension agenda •  Changes in pension systems, auto-enrollment, the relative weight of the three pillars of retirement income. •  Best practices – well known to this audience, but not in DenmarkSide 5
  6. 6. Basic facts about the Danish pension model •  flat rate public pension with a supplement depending on other income – poverty prevention •  occupational pensions - replacement –  mandatory by collective agreement –  covering 80-90 per cent of labour force –  replacement rates in combination with public pensions are 60-80 per cent –  defined contribution, contribution rates of 12-18 per cent of the salary –  retirement, disability, death, critical illness •  individual pensions - flexibilitySide 6
  7. 7. What we know •  Most consumers do not know or care about their pensions •  Many consumers do not try to understand •  To what degree are you interested in topics related to pensions?Side 7
  8. 8. What we know •  90 per cent are in (self perceived) good control of their personal finances •  All in all I think I have good control of my personal finances Pct. 60 50 40 30 20 10 0 Meget enig Enig Uenig Meget uenig Ved ikkeSide 8 Alle Mænd Kvinder
  9. 9. What we know •  But more than 1/3 are unable to cover a minor unforeseen expense •  I always have enough money saved to buy for example a new refrigerator (in cash) in case the old one breaks down Pct. 35 30 25 20 15 10 5 0 Meget enig Enig Uenig Meget uenig Ved ikkeSide 9 Alle Mænd Kvinder
  10. 10. What we know •  …and just half have in the last couple of years examined, if they can get better (i.e pay lower) interests on their loans Pct. 35 30 25 20 15 10 5 0 Meget enig Enig Uenig Meget Ved ikke uenigSide 10 Alle Mænd Kvinder
  11. 11. What we dont know How do we: •  motivate consumers to take an interest? •  get consumers to use our webtools? •  make consumers aware of the gap between what they think they know and what they actually know? What is fair and realistic to expect of consumers ? •  regarding knowledge •  regarding interestSide 11
  12. 12. What we are doing www.PensionsInfo.dk gain an overview of your pension •  Easy to use – log on through your webbank •  Provides an overview of total pension benefits in –  public pensions –  ATP (Labour Market Supplementary Pension Fund)life insurance companies, –  life insurance companies –  pension funds –  civil servant pensions –  banksSide 12
  13. 13. Side 13
  14. 14. What we are doing Consumer Plan 2010 •  Our focus is to enhance transparency •  Consumer Plan 2010 supersedes the DIA plan from 2006 with 18 initiatves to create openness and transparency. •  Consumer plan 2010 with the following elements: –  Better overview: Consumers will be given better opportunities to compare products and companies –  More clarity: About rules and rights –  Empowering consumers: Projects about financial literacy, motivation and educationSide 14
  15. 15. Consumer Plan 2010 Better overview •  Facts about pensions – a new web tool to compare pension schemes and pension providers •  The pension overview – a standardised resume of annual pension statements given to the customers •  Pension APR (Annual Percentage Rate) •  "Cost-meter" •  Pension terms – standardisation of the most important pension wordsSide 15
  16. 16. Consumer Plan 2010 Empowering consumers Projects about: •  Financial literacy – a study/survey concerning the level of the Danes financial literacy – baseline study •  Motivation – research on what motivates consumers on the financial markets •  Education – a pilot about about ways to strenghten consumers financial literacy by means of educationSide 16
  17. 17. More about motivation •  Lack of motivation = a barrier for consumers to engage actively in pensions •  No motivation – no action •  Our tools receive good evaluations – but are not used a lot •  3 examples: What can we learn from them?Side 17
  18. 18. Example 1 - The Jam experiment •  Taste booth in a supermarket •  First experiment: 24 different taste variants •  Second experiment: 6 different taste variantsSide 18
  19. 19. Example 1 - The jam experiment •  Many options attracts attention •  Many options reduces action Stops Tastes Buys Many 60 % 1,5 3% options Few 40 % 1,38 30 % optionsSide 19 Forsikring & Pension | Titel
  20. 20. Example 2 - Save More Tomorrow •  SMT raises retirement savings – the employee set aside a part of future salary raises •  Help employees who wish to save more – but lack the will power. •  SMT turns something negative to something positive: –  Loss aversion: Participants dont experience lower salary –  Procrastination: Once in, you have to take action to get out –  Self-control: You oblige your self to save laterSide 20
  21. 21. Example 3 - Electric bills and smileys •  What happend when US consumers received information about the relative size of their bill: –  Above average => reduces consumption –  Below => increases consumption –  Below and use of  => unchanged consumptionSide 21 Forsikring & Pension | Titel
  22. 22. Summing up motivation •  Free to choose – political buzzwords –  how much choice should consumers with low financial literacy have in complex markets •  Save More Tomorrow – the Danish pension system is paternalistic –  a way to overcome lack of motivation •  The use of norms –  electric bill: People generally like to fit in and do the right thingSide 22
  23. 23. The road ahead •  How do we motivate consumers? –  Which hurdles are hardest to overcome? •  Which information channels are essential? –  In Denmark we have relative success with the site www.pensionsinfo.dk – you can access it easily through online banking •  How much can we expect from consumers? –  How high should you reach? –  How do we set the goals?Side 23
  24. 24. The road ahead •  Joint responsibility for increased financial literacy •  Financial sector: Responsible for creating transparent markets and inform consumers in a way they understand. •  Consumers: Responsible for trying to understand •  Politicians ans authorities: Responsible for making room for financial literacy in the educational sector and for creating confidenceSide 24

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