Communication on Pension Amounts: A Study on Interpretation and Understanding

Communication on Pension Amounts A Study on Interpretation and Understanding July 2022 Occasional Paper AFM.nl

2 Communication on Pension Amounts Table of Contents Explanation of the Research 3 Appendix 1: Research Report Ruigrok NetPanel 4

3 Communication on Pension Amounts Explanation of the Research Research into communication during the transition helps the AFM prepare for supervision During the transition to the new pension system, the accrued entitlements to a payout for many participants will be converted into pension wealth. At the same time, the agreements on how participants build up their pension are changing. The AFM has commissioned research into how people can be effectively informed about the changes in their pension. This research examined the situation where the transition has positive consequences for the participant's expected payout, but negative consequences for the accumulated pension wealth. In this situation, careful communication is particularly important according to the AFM. The question the AFM wants an answer to is to what extent showing the pension wealth – in addition to information about the expected pension payout – adds value for participants. The AFM will incorporate the results of the research into the broader preparation of its supervision of the pension sector. Communication must be careful and mindful of the different needs and interests of the recipient Based on the research, the AFM concludes that for a certain group of participants, communicating pension wealth adds value. They are interested in this information and use it to make decisions about their pension. At the same time, there is a group of people who do not use this information about pension wealth, and for whom it even works confusingly and/or distracts from the most important information: the information about the pension payout. Layered communication and setting and monitoring clear communication goals during the transition are among the possibilities to deal with the different needs and interests of participants. A large group finds information about pension wealth very difficult or uninteresting The results of the research do not show a clear picture: although the researchers paid much attention to clear information provision, it again appears that information about pension amounts is difficult for many people to understand. Not everyone understands what pension wealth is, making it difficult for them to interpret this amount. They also do not understand why – in the situation studied – the pension payout increases while the pension wealth decreases. A key observation from the research is that many respondents show little active involvement with their pension. This contributes to the fact that information about pension amounts is difficult for many people to understand and place, as also shown by earlier research. A certain group does use this information At the same time, it appears that a part of the respondents, particularly the highly educated, benefit from seeing the pension wealth. They use this information, for example, to make decisions about their retirement date. They also state that they will be critical if they only receive information about the pension payout from their pension provider. Especially if it later turns out via the media that the 'invaren' (transition mechanism) has led to negative redistribution effects for them. Accessible information contributes to trust in the pension system for this group of people. An important caveat, of course, is that – even if pension funds communicate openly and fully – not all participants will actually receive the information via their pension provider. Most people do not look at their pension statements, meaning the media will inevitably influence the image formation of participants.

4 Communication on Pension Amounts Appendix 1: Research Report Ruigrok NetPanel

REPORT COMMUNICATION ON PENSION AMOUNTS A quantitative and qualitative study among pension accumulators commissioned by the AFM, within the framework agreement (ROK) Qualitative Market Research Lot 4 Zoë Dankfort Laura Hafkamp Kris Compiet Nanette van Haften AMSTERDAM, FEBRUARY 2022

TABLE OF CONTENTS

Conclusion and our vision 03 Background and objective of the research 08 Sub-conclusions 10 ◦ Assessment of consequences 11 ◦ Trust 18 ◦ Understanding 26 Appendices 32 ◦ Research justification 34 ◦ Stimulus material 40 ◦ Additional results 44 2 TABLE OF CONTENTS

3 CONCLUSIONS AND VISION

MANAGEMENT SUMMARY (1/2) Approach

With this research, we mapped the relationship between communicating pension wealth (in combination with the pension payout) on the one hand, and the image of one's own pension and trust in the (new) pension system on the other. To answer the research question, qualitative and quantitative research were used. 13 individual online interviews were held with pension participants, and additionally, n=657 pension participants filled out an online questionnaire. In both studies, we specifically looked at the situation where the expected pension payout in the new system is higher, but at the same time the pension wealth decreases. General Conclusion The results of the research show that when only the pension payout is communicated, this leads to an incorrect, more positive expectation of pension wealth. Trust in the pension system is slightly higher when only the expected pension payout is communicated. 4 CONCLUSIONS AND VISION

MANAGEMENT SUMMARY (2/2) Assessment of Consequences

Participants who are only informed about the expected payout more often have the false image that their pension wealth will also rise, whereas participants who see both wealth and payout more correctly think that pension wealth will decrease. If the participants who were initially only informed about their expected payout subsequently also receive information about their pension wealth, they adjust their image of the consequences of the transition for their pension negatively. Trust Communicating only pension payout initially leads to slightly more trust in the pension system than when wealth is also communicated in the transition information. However, when it later turns out that wealth has decreased (for example, via the media or through own research), this leads to a negative sentiment in one in five participants, particularly the highly educated. A large group is neutral or has no opinion. Understanding For many participants, the transition information is difficult to understand. It makes no difference in this regard whether only transition information is given about the payout or whether information is given about the payout and the wealth. Participants who are less engaged with their pension find the transition information less easy to understand. The difference between pension payout and pension wealth is not always clear to them. 5 CONCLUSIONS AND VISION

OUR VISION Communicating only pension payout leads to an overly positive image and too much trust; at the same time, the transition information is difficult for many participants to understand

Communicating only the pension payout leads to an overly positive image of pension wealth. Although participants initially have more trust in the new pension system if they only receive transition information about their pension payout, we see that this trust decreases for a quarter of participants when they also see the pension wealth. When they later find out via the media or through own research about a decreasing pension wealth, this leads to a negative sentiment in a group of participants, particularly among the highly educated. An important caveat remains that a large group of Dutch people building up their pension have little interest in engaging with their pension. Particularly the less educated and participants further away from their pension (34- to 55-year-olds) are not engaged with their pension. This makes the transition information difficult for a large group to understand and place. Reduce the risk of incorrect expectations and a break in trust, but prevent ambiguity When offering the transition information, it is important that on the one hand the risk of incorrectly positive expectations and a break in trust in the pension funds is reduced. On the other hand, ambiguity must be prevented as much as possible. Therefore, we advise making the full transition information about both pension payout and pension wealth available to everyone who wants to know more. This can be done, for example, by informing participants briefly via direct mail, with a referral to the full transition information online. 6 CONCLUSIONS AND VISION

CONCLUSIONS AND VISION When only the pension payout is communicated, this leads to an (unjustified) more positive expectation of the pension, more trust in the pension system, and the same level of understanding as when participants are informed about both payout and wealth Assessment of Consequences Many participants are not well able to assess what consequences the transition exactly has for their future pension. When participants only see transition information about their pension payout, they assess the consequences more positively than when they also see the pension wealth. Trust Trust in the new pension system is slightly lower when participants see both wealth and payout than when participants only see the payout. In a situation where only transition information about the pension payout is given and participants later hear in the media about the decreasing pension wealth, some participants, particularly the highly educated, are critical. Understanding Giving extra transition information about pension wealth does not initially lead to more or less self-reported understanding. However, afterwards a reasonably large group states that extra transition information helps. Before participants have seen what the transition means for their pension payout and/or wealth, slightly more than half think the system will have consequences for their pension. Participants generally have trust in the pension funds, but less in policymakers. About four in ten participants say they find the information understandable. The group that only sees the payout finds the information as understandable as the group that sees both payout and wealth. After hearing the explanation, participants mainly need information about what the transition means for their situation. Participants who see both payout and wealth receive less trust in the new pension system than participants who only see the payout. Participants who do not understand the pension communication cannot explain the difference between pension payout and pension wealth well. Participants who have seen payout and wealth more often expect the transition to have negative consequences for their pension than participants who only saw the payout. After also showing the pension wealth to the group that initially only saw transition information about the payout, a minority gains more trust in the new system. Of the participants who do not find the transition information about payout alone understandable, 40% say they get a better understanding of their pension after seeing the pension wealth. Participants who first only saw transition information about their pension payout and later also saw the wealth, adjust their image of the consequences somewhat negatively. One in five participants says they are negative if they would only see the payout; particularly the highly educated. A large group is neutral or has no opinion. More than two-thirds of participants who have seen both payout and wealth understand that going into retirement after the transition is disadvantageous. Nevertheless, there is still much doubt. Participants who see both wealth and payout more often think the pension will decrease (both payout and wealth), while the group that only sees the payout more often (incorrectly) estimates that pension wealth will become higher. If these participants later find out about a decrease in personal wealth, they feel disadvantaged, do not understand it, or think the pension funds have let them down.

8 BACKGROUND AND OBJECTIVE OF RESEARCH FOREWORD A new pension system

A new pension system is coming. Pension accumulators will be informed about this. The amounts communicated here are uncertain, however, because they concern expectations. Earlier research into the new pension system has shown that pension accumulators currently do not have a clear image of their pension and expect that their trust in the pension sector will decrease after the changes [1][2]. Therefore, it is important for the AFM that participants are well informed about the transition to the new system. The AFM wants the new (expected) pension amounts to be communicated by the pension sector in a transparent and clear manner. With this, the AFM hopes to not only give participants a realistic and clear image of the individual consequences of the pension transition, but also contribute to trust in (a fair transition to) the new pension system and in the pension providers. Research Objective and Questions The AFM wants to gain insight into which amounts give participants a realistic image of the individual implications of the transition and what that does to trust in the pension sector and the new system. Through qualitative and quantitative research among pension accumulators, we answer the research question in this report: What is the relationship between communicating pension wealth (in combination with the pension payout) on the one hand, and the image of one's own pension and trust in the (new) pension system on the other? ◦ What expectations do participants have of the consequences of the new pension system on their current pension basis based on the presented communication (payout + wealth or only payout)? ◦ What image (complete, clear, realistic) do participants have of their own pension following the pension communication (payout + wealth or only payout)? ◦ What is the trust of participants in the pension system following the pension communication (payout + wealth or only payout)? ◦ What is the attitude of participants when they only see the payout and not the pension wealth? ◦ What differences are there between age groups in expectations, the image, the degree of trust, and the attitude towards pension communication (payout + wealth or only payout)? [1] https://www.pensioenfederatie.nl/stream/communiceren-over-de-nieuwe-regels-voor-pensioen-nov-2020.pdf [2] https://pure.uvt.nl/ws/portalfiles/portal/56776764/Gemengde_gevoelens_rond_het_nieuwe_pensioenstelsel_Pensioen_Magazine_september_2021.pdf

RESEARCH DESIGN AND READING GUIDE Method and Target Group

To answer the research question, qualitative and quantitative research were used. The qualitative research was conducted online in the form of 13 individual interviews. The target group for this research consisted of Dutch people (35-66 years) who have been building up pension at a pension fund for at least 10 years (no minimum income). The quantitative research was conducted online. In total, n=657 participants filled out the questionnaire completely. The target group for this research consisted of Dutch people (35-66 years) who have been building up pension at a pension fund for at least 10 years with a minimum income of 1500 euros net per month. This group has built up pension wealth and will be affected by the 'invaren' (transition). The gross sample is representative by gender, age, and education. Research Process The qualitative research provided insight into the context, argumentation behind, and emotions regarding the understandability and completeness of, and trust in, the presented amounts. Based on these insights, the explanations given orally by the interviewer during the interview were added to the presented amounts. This sharpened material was then presented in the quantitative research. In both studies, we specifically looked at the situation where the expected pension payout in the new system is higher, but at the same time the pension wealth decreases. Reading Guide In this report, we refer to the respondents in the research as 'Participants'. Answers to open questions were analyzed qualitatively. We do not only address the most frequently mentioned answers, but also the answers we consider substantively important. We illustrate outcomes with relevant quotes from participants, which are presented in italics. We tested the differences between target groups for significance. Only differences that are significant (p<0.05) are mentioned in this report. The percentages in the report are rounded. Therefore, the total may occasionally add up to more or less than 100%. For the results from the qualitative research, it is important to take into account the indicative nature of qualitative research. The value of qualitative research lies in the breadth and depth of the outcomes, not in the numerical distribution thereof. The outcomes are therefore not suitable for generalizations to the entire target group. The results from the qualitative research are indicated with the following framing: 9 FOREWORD

10 SUB-CONCLUSIONS

ASSESSMENT OF CONSEQUENCES 11 ASSESSMENT OF CONSEQUENCES

MANY PARTICIPANTS ARE NOT WELL ABLE TO ASSESS WHAT CONSEQUENCES THE TRANSITION EXACTLY HAS FOR THEIR FUTURE PENSION. WHEN PARTICIPANTS ONLY SEE TRANSITION INFORMATION ABOUT THEIR PENSION PAYOUT, THEY ASSESS THE CONSEQUENCES MORE POSITIVELY THAN WHEN THEY ALSO SEE THE PENSION WEALTH. 12 ASSESSMENT OF CONSEQUENCES

13 BEFORE PARTICIPANTS HAVE SEEN WHAT THE TRANSITION MEANS FOR THEIR PENSION PAYOUT AND/OR WEALTH, SLIGHTLY MORE THAN HALF THINK THE SYSTEM WILL HAVE CONSEQUENCES FOR THEIR PENSION ASSESSMENT OF CONSEQUENCES 58% 11% 31% Do you expect the new pension system to have consequences for your future pension? Base: all (n=657) Yes No I don't know BEFORE SHOWING THE PENSION AMOUNTS 55- to 66-year-olds more often (16%) than 35-54 year olds (8%) think the new pension system will have no consequences for their future pension.

AFTER HEARING THE EXPLANATION, PARTICIPANTS MAINLY NEED INFORMATION ABOUT WHAT THE TRANSITION MEANS FOR THEIR SITUATION

After an oral explanation about the new pension system, participants react differently: ◦ Some participants find the changes not clear. They do not understand what these changes entail; ◦ Others do not find the difference with the current pension system clear. They reason that the amounts already fluctuate now and that they already see their personal pension wealth in the pension overview of their pension fund; ◦ There is a group that reacts resigned. They will see it when they (almost) retire. They expect that by the time they retire, the system will have changed again; ◦ There is a group that reacts critically. They understand that their pension moves with the economic situation, but they mainly see the negative side: a poor economic situation. The potential positive side, a good economic climate, is hardly taken into account. Fear and uncertainty arise about what will happen to the height of their pension: can I live on that? Participants mainly need information after hearing the explanation about what the transition means for their situation. 14 ASSESSMENT OF CONSEQUENCES If the economy goes well, we profit from it. But if it goes badly, you take a step back again. Then I think: then it goes constantly back and forth. Then you never know where you stand. That gives me uncertainty, I think. Qualitative Insights

PARTICIPANTS WHO HAVE SEEN PAYOUT AND WEALTH MORE OFTEN EXPECT THE TRANSITION TO HAVE NEGATIVE CONSEQUENCES FOR THEIR PENSION THAN PARTICIPANTS WHO ONLY SAW PAYOUT 7% 3% 19% 10% 44% 55% 16% 19% 15% 13% Condition 1 (payout + wealth) (n=329) Condition 2 (only payout) (n=328) How do you assess what the consequences of the new pension system on your future pension will be? Base: all 1 - Very negative 2 3 4 5 - Very positive I don't know

• The group of participants who is (very) negative after seeing both payout and wealth (condition 1) is significantly (p<0.05) higher than the group of participants who is (very) negative after seeing only the payout (condition 2).
• After seeing only payout, participants significantly more often assess the consequences as neutral than after seeing payout + wealth (p<0.05). 15 ASSESSMENT OF CONSEQUENCES AFTER SHOWING THE PENSION AMOUNTS

The transition information shown in the questionnaire is included as an appendix.

PARTICIPANTS WHO FIRST ONLY SAW TRANSITION INFORMATION ABOUT THEIR PENSION PAYOUT AND LATER ALSO SAW THE WEALTH ADJUST THEIR IMAGE OF THE CONSEQUENCES SOMWHAT NEGATIVELY 3% 4% 10% 15% 55% 52% 19% 16% 13% 12% Condition 2 (only payout) (n=328) Condition 2 (after seeing wealth) (n=328) How do you (now) assess the consequences of the new pension system on your future pension? Base: condition 2

A paired sample t-test was used to check if there is a significant difference before and after showing the pension wealth in the expected consequences. This analysis shows that after seeing the pension wealth, participants subsequently assess the consequences of the new pension system on their future pension slightly more negatively. The difference is not large, but significant (p<0.00). 16 ASSESSMENT OF CONSEQUENCES FIRST PART (PENSION PAYOUT) AND SECOND PART (PENSION WEALTH) OF TRANSITION INFORMATION

PARTICIPANTS WHO SEE BOTH WEALTH AND PAYOUT MORE OFTEN THINK THE PENSION WILL DECREASE (BOTH PAYOUT AND WEALTH), WHILE THE GROUP THAT ONLY SEES THE PAYOUT MORE OFTEN (INCORRECTLY) ESTIMATES THAT PENSION WEALTH WILL BECOME HIGHER 17 ASSESSMENT OF CONSEQUENCES When the new pension rules come into effect, after the transition... 34% 27% 14% 26% 42% 16% 13% 28% Higher Lower Stays the same I don't know ...my pension payout is expected to Base: all (n=657) 21% 40% 12% 27% 41% 16% 14% 30% Higher Lower Stays the same I don't know ...my pension wealth is expected to Base: all (n=657) Condition 1 (payout + wealth) (