Pension scheme trustees as surrogate decision makers

Leonardo Weiss-Cohen, Peter Ayton, Iain Clacher and Volker Thoma

Finance Research Letters, 2022, vol. 44, issue C

Abstract: Pension trustees make surrogate decisions on behalf of scheme members. However, prior research has not explored how this might affect pension adequacy. Our results show that when setting targets for pension replacement income, trustees project their own preferences instead of reflecting member preferences. Furthermore, projection was more pronounced for trustees with lower financial literacy. Trustees choose significantly higher pension replacement rates for members than members choose for themselves. Trustees also choose replacement rates higher than current benchmarks. The economic consequences are potentially considerable, due to high levels of pension contributions and incompatible risk-taking. A better understanding of the dynamics of decisions made by trustees is needed to ensure better member outcomes.

Keywords: Behavioral finance; Decision-making; Pensions; Trustees; Surrogate decisions; Financial literacy (search for similar items in EconPapers)
JEL-codes: D1 H3 L2 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001240

DOI: 10.1016/j.frl.2021.102043

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