Encouraging Private Retirement Savings as a Problematic Pension Reform Strategy: When and Why People Start Planning for Retirement.

Populations ageing has raised concerns that this demographic shift may destabilize pension schemes. Pay-as-you-go-financed pension schemes may see an imbalance between the number of pension contributors and recipients. Capital stock-based pension schemes may see an imbalance between the pension contributions a person pays and the increasing number of years of pension benefits this person would need. Consequently, policymakers seek to reform public pensions. Because these reforms take time, the pension challenges may not be immediately solved. Some generations may receive too little public pensions and run the risk of old age poverty. To mitigate this problem, policymakers suggest that individuals accumulate more private retirement savings. While this idea has merit, it also has some problems. Previous research underlined that not everybody is able to accumulate private retirement savings. Those with a sizable income in middle-age are likely to have private pension savings, whereas those with a low income in middle-age are likely to lack private pension savings. As a result, the social inequalities in old age may increase. This study suggests that a second problem may arise because individuals start planning for their retirement only at a late age, which leads to insufficient time to accumulate private pension savings. To shed light on this issue, this study reports on interviews with 25 Finns aged 30-69 years. The interviews explored three questions: (1) When do people start planning for retirement? (2) What makes people start planning for retirement? (3) What are the reasons for why some people do not plan for retirement? The interviews were analyzed using qualitative content analysis. Purposeful sampling was employed for recruiting research participants from four different age groups: 30s-, 40s-, 50s- and 60s. This sampling approach allows for determining when retirement planning sets in. The findings suggest that motivations for planning are twofold; people can plan to realize positive life goals in retirement and people plan to pre-empt future social risks, but the latter tends to be complicated by contradictory pressures. The respondents in their mid-fifties to early sixties commonly engaged in leisure time planning, which related to a general positive future perception and lessening interest towards working life. Pension security related concerns often did not motivate financial planning because they occurred in life situations where people did not feel that they had enough resources to set aside for the future, and present concerns were prioritized. Pension security related concerns were particularly common among the respondents in their thirties, but worries about pension security did not transform into concrete actions or planning, as these were countervailed by other economic concerns, issues more immediate relevant at this life-stage and general feeling of unknowability about the future. The findings illustrate life-stage-related motivations for retirement planning and suggest explanations for procrastination and under-saving in retirement planning. They also explicate reasons for why strategies to encourage private pension savings may fall short of their goals.