Well-appreciated but (too) Difficult Pensions Choices?

Well-appreciated but (too) Difficult Pensions Choices? Insights from the Swedish Premium Pension System


Sweden is known as one of the first countries in the world to introduce choices in the first pillar pension. Every person, who is working and paying taxes in Sweden, has to choose investment funds to build up a certain part of their state pension – the Premium Pension. Positive scenarios predict that the funds will cover 30% of a person’s state pension at retirement age, while the remaining 70% come from the widely known “pay-as-you-go” state pension. With the system at work, members’ pension income depend on the investment choices they make. Currently, the system offers more than 800 investment choices and we are interested how members deal with that enormous choice menu. We find that the choice menu and architecture is not ideally set-up and that the default investment fund is not well designed leading to potentially wrong investment choices.


We run a survey among the Swedish working population between 25 and 65 years of age. A Swedish research agency distributed our questionnaire to 14,093 e-mail addresses of an online panel in July 2017, using quota sampling. We had a response rate of 21.3 percent analyzed 2,646 valid responses left after we excluded cases with missing values and cases of already retired participants. Next, we run logistic regressions and an OLS regressions to study the effect of choice overload, risk tolerance, and subjective knowledge on self-reported choice behavior and perceptions of financial well-being. To eliminate noise, we used established scales from previous research for our key variables and added control variables measuring time preferences, choice appreciation, whether participants have seen a financial advisor in the past 12 months, and socio-demographics (education, family status, children, gender, age, income and private pension savings).


Though members appreciate choice they also feel uninformed, feel choice overload and eventually only rarely make an active decision. Those that report lower levels of subjective knowledge are found to be 1.6 times less likely to form their own portfolio, while risk averse members tend to invest in the default fund more often. This fund is, however, ironically one of the most risky funds on the choice menu. Those groups are also more likely to feel negative about their future financial well-being. Figures 1 and 2 illustrate choice appreciation and overload.

Figure 1: Choice Appreciation

Experiment Results

Note: This figure shows the percentages of repsondents that appreciate having choice (versus having the state handling their pension or have no opinion) for different age groups.

Figure 2: Distribution of Choice Overload

Experiment Results


The study suggests that the choice set is too large and choices made are not in line with members’ risk preferences. The choice set should be substantially decreased and the default fund should be chosen more carefully to be better aligned with members’ risk preferences.

Lead researchers Monika Böhnke, Lisa Brüggen, Thomas Post (all Maastricht University)

Project partners Maastricht University

Project status finished

Project publications

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