Investor Inattention: A Hidden Cost of Choice in Pension Plans?
31 Pages Posted: 24 Dec 2010 Last revised: 2 Apr 2011
Date Written: November 19, 2010
We investigate inattention on the part of pension plan participants using a novel dataset covering savings in Sweden's Premium Pension System, data that permit direct comparison of the investment behaviors of pension and retail mutual fund investors. Unlike retail mutual fund investors, pension investors do not seem to react to past fund performance. This behavior means that pension investors face a greater risk of being caught in poorly performing funds. Our evidence suggests that inattention to past returns translates into poorer investment results for pension investors. We discuss a potential change in the design of the Premium Pension System that may mitigate costs for inattentive investors while maintaining flexibility for attentive investors.
Keywords: Flows, Inertia, Pension Plan Design, Performance, Redemptions
JEL Classification: G11, G23, H55
Suggested Citation: Suggested Citation