Knowledge, Information, and Retirement Saving Decisions: Evidence from a Large-Scale Intervention in Chile

All over the world, retirement income is increasingly depending on an individual’s savings choices over their lifetime. To assess if individuals are saving enough for their old age at least three questions are relevant: Do they know how much saving is necessary to achieve a desired living standard in old age? Would they make different decision is faced with new information about their ongoing retirement savings? Is there enough time or is it too late to improve their retirement income by increasing current savings? A growing literature has shown evidence of widespread financial illiteracy in the US and other developed countries, which would prevent making adequate choices. In this article, we exploit a unique large scale natural experiment to analyze the impact of improving information, in the form of a new personalized pension projection on the retirement saving behavior of Chilean workers. Using matching techniques and a rich administrative data set, we find that the new information provided caused an increase in the probability of making voluntary contributions for old age, of approximately 1.4 percentage points, for individuals in the 40-50 age-group. The effect on younger cohorts was smaller. The impact on women is significantly larger than that on men, potentially reflecting a higher sense of urgency. As expected, individuals exposed to a positive tax benefit when making voluntary contributions exhibit a significantly larger impact than tax exempt individuals, but individuals with high projected replacement rates present a slightly higher impact than those with lower replacement rates. Overall, these results show how a simple improvement in the information provided by pension administrators can have important effects on individual savings decisions.