1 / 12

Outline

The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States Discussion David McCarthy LSE 7 th June 2007. Outline. US Savings Institutions Impact of Defaults on Retirement Savings Outcomes Explaining the Impact Impact on Public Policy.

tyra
Download Presentation

Outline

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United StatesDiscussionDavid McCarthyLSE 7th June 2007

  2. Outline • US Savings Institutions • Impact of Defaults on Retirement Savings Outcomes • Explaining the Impact • Impact on Public Policy

  3. US Savings Institutions • Social Security • DB Plans • 401(k) plans • Roth and other IRA’s

  4. Impact of defaults • Savings plan participation • Defaults affect time taken to sign up for most people and ultimate participation for a minority • Widely documented effect • In this case participation is relatively insensitive to amount of default contribution (3% or 6%) • Although interaction with matching important

  5. Impact of defaults • Impact on savings amount • This is less sensitive to default option than the decision to participate (>50% change their contribution amount from the default) • This is puzzling as the decision to opt out is exactly equivalent to the decision to participate but with a contribution rate of 0% of pay. • Difference between those who did not participate initially and subsequently automatically enrolled - and those automatically enrolled at inception

  6. Contribution rate

  7. Contribution rate

  8. Impact of defaults • Asset allocation • Impact huge • Differs by new hires and by those already having elected not to participate

  9. Impact of defaults • Pre-retirement savings distributions • Post retirement options • “Elective defaults” • SMarT • Quick Enrollment

  10. Explanation of defaults • Complexity of decision • Present-biased preferences and procrastination • Default as endorsement • Framing?

  11. Designing public policy when defaults matter • An “Optimal” default • Examples of defaults in public policy • NPSS • Sweden • Joint-and-survivor benefits • Employee termination

  12. Overall • Useful summary of literature • Evidence which is consistent with existing literature • Interesting discussion of underlying economic issues

More Related