The Demand for Advice in Defined Contribution Pension Plans: Age, Gender, and the Size-of-Bet Effect

Defined contribution (DC) or money purchase pension saving schemes place the onus on participants to make decisions on asset allocation, the choice of investment vehicles, and the extent to which changes in individual circumstances and macroeconomic conditions should affect investment strategy. Many people are ill-equipped to make these types of decisions. The role of third-party advisers is quite problematic, particularly when their incentives are inconsistent with the interests of those that seek advice. In this paper, we report the results of a comprehensive study of the advice sought by Australian DC participants from their plan sponsors (agent) over time, explaining observed patterns by reference to participants’ age and gender, the salience of the issue, and the size-of-bet effect. The mode of inquiry, the frequency and volume of contact by plan participants, and the sensitivity of participants to announced changes in the national pension regime and macroeconomic events are also considered. Whereas research on this topic has focused upon fee-for-service advisers, we focus upon the advice provided by the agent of DC plan sponsors that has no direct interest in the outcome of calls or web-based inquiries. Analysis takes in approximately 430,000 Australians over the period 2004 to 2013.