Towards efficient pillar II and III pension decisions in Belgium: Product innovations, customized goal-based pension planning and nudging
Pensions in Belgium are based on three pillars: the state pension (pillar I), the supplementary work-related pension (pillar II), and the pension that each person can arrange for himself (pillar III). The OECD pension outlook (OECD, 2018) calls for action to deal with the declining trend in the ratio between the retirement income (i.e. the sum of pillar I, II and III pensions) and the employment income at the time of retirement. Indeed, due to steadily increasing life expectations, an aging population, adverse budgetary conditions, and low interest rates, a trend reversal cannot be readily expected.
In this challenging environment, it is of utmost importance to have a pension savings system that is as efficient as possible, an objective that was also confirmed in a series of meetings that we held with a broad range of stakeholders. This project contributes to a higher efficiency in pillar II and III in four ways.
First, we develop the management tools for annuities, tontines, and reverse mortgages that make it possible to offer retirees more flexible products in terms of choice of cash flows (e.g., receiving more in states of ill health).
Second, we create an optimal life-cycle investment decision framework that makes it possible to match as good as possible the desired pension income with the predicted pension income from actual pension savings.
Third, we use pension savings data and field studies to learn about peopleU+2019s actual life-cycle behaviour. We determine how large the inefficiencies are and what actions employers, advisors and policy makers can take to influence the intentions and actions of individuals in ways that nudge them toward more efficient decision making.
Fourth, we provide recommendations to facilitate introduction of novel retirement products. In order to help pension savers in making efficient pension savings decisions we develop a digital platform, PensionMaps, to guide them through these decisions.