Working PaperPDF Available

Figures

Content may be subject to copyright.
The Making and Breaking of
Trust in Pension Providers
An Empirical Study of Dutch Pension
Participants
Hendrik P. van Dalen and Kène Henkens
DP 09/2017-015
1
The Making and Breaking of Trust in Pension Providers
An Empirical Study of Dutch Pension Participants
September 29, 2017
Hendrik P. van Dalena,b and Kène Henkensa,c,d
(a) Netherlands Interdisciplinary Demographic Institute (NIDI)
P.O. Box 11650
NL-2502 AR The Hague
The Netherlands
(b) Tilburg University
Tilburg School of Economics and Management (TISEM) and TIAS
P.O. Box 90153
NL-5000 LE Tilburg
The Netherlands
(c) University of Groningen
University Medical Center Groningen (UMCG)
P.O. Box 72
NL-9700 AB Groningen
The Netherlands
(d) University of Amsterdam
Department of Sociology
Oudezijds Achterburgwal 185
1012 DK Amsterdam
The Netherlands
Keywords: trust, pension, stability, integrity, transparency
JEL codes: D02, D03, G23
Corresponding author: Hendrik P. van Dalen (dalen@nidi.nl)
* This research was carried out with the support of a Netspar grant concerning the project
Trust and individual choice in collective pension arrangements and a grant of the
Netherlands Institute for Advanced Studies (NIAS) and the VICI Research Grant
(grant no. 453-14-001) of the Netherlands Organization for Scientific Research (NWO)..
Comments by participants of Netspar workshops are gratefully acknowledged.
2
Abstract:
Trust in pension institutions is pivotal in making pension decisions, like saving or enrolling in
pension programs. But which traits of pension institutions matter in making or breaking trust
in providers like pension funds, banks or insurance companies? This paper presents an
empirical analysis of the underlying forces of trust in private pension providers in the
Netherlands. Based on a large-scale survey among pension participants, we show that the
perceived integrity, competence, stability, and benevolence of pension providers matter in
assessing the trustworthiness of pension providers. Pension funds are more trusted than banks
or insurance companies, a difference that is primarily related to weights attached to perceived
levels of integrity and stability. Second, higher educated participants have a significantly
higher propensity to trust pension providers than lower educated. Third, transparency as
perceived by participants plays virtually no role in establishing trust.
3
Introduction
The pension systems in Europe are in a state of flux (OECD, 2013). The financial
sustainability of pension arrangements has been a structural worry for governments for years
as a consequence of population ageing. The financial crisis has put even more pressure on
governments and private pension providers to address the fallibilities of funded pension
schemes (Casey, 2012). Pension entitlements and promises were tacitly perceived as certain
but the crisis revealed the inherent uncertainty in financial contracts. The trust that workers
and pensioners have put in pension providers was being put to the test. In that respect the
definition of trust by Gärling, Kirchler, Lewis, and Van Raaij (2009) succinctly captures the
essence of the function of trust, namely “the experience of certainty where no real certainty
can exist.” The need for trust remains as high as ever as pension reforms increasingly shift
risks to individuals (Quinn and Cahill, 2016) and therefore they have a greater stake in being
concerned about how pension providers handle their money. Handling risk requires for most
people professional expertise offered by financial institutions. However, the reputation of
these institutions has been seriously damaged by imprudent and sometimes fraudulent actions
over the years. During and after the credit crunch of 2008 financial institutions have been
trying to restore the trust level they enjoyed well before the onset of bank runs and financial
scandals. Expertise, integrity and benevolence have been seriously questioned in public
debates, especially of banks (Jansen, Mosch, and van der Cruijsen, 2015; van der Cruijsen, de
Haan, and Jansen, 2016).
Understanding trust in pension providers and related institutions is of utmost
importance. Not only because such research offers a reality check for pension professionals
how they are perceived, but more importantly it may explain why people are hesitant to put
their life savings in the hands of private-sector professionals, why they do not seek financial
advice, or why they have not saved enough to meet their needs or expectations (Taylor-
Gooby, 2005; Vickerstaff, Macvarish, Taylor-Gooby, Loretto, and Harrison, 2012; Henkens
et al., 2017). The central research question in this paper therefore concerns the very basic
question: what makes and what breaks the trust that pension participants have in pension
providers?
Although pension insiders discuss and underscore the importance of trust in pension
institutions (Besley and Prat, 2005; Hyde, Dixon, and Drover, 2007; Schanz, 2009) the
concept of trust and its underlying dimensions are rarely measured and examined empirically
4
in the academic literature. Trust is generally seen as the essential ingredient in making
societies work and there is ample macroeconomic evidence of the importance of generalized
trust for economic growth and well-being (Berggren and Jordahl, 2006; Beugelsdijk, De
Groot, and Van Schaik, 2004; Zak and Knack, 2001). At the micro level the importance of
trust and its underlying forces are far more difficult to establish. As Vickerstaff et al. (2012)
make abundantly clear in their review of the literature on trust in pensions there is “a
surprising lack of literature on how individuals differentiate between different pension
products and their providers.” (p.30). Practitioners resort to making claims about controlling
trust based on rules-of-thumb. For instance, trust activities are often translated in being
transparent as a company and communicating in an open and clear manner about the provided
services. However, some state that transparency is overrated (Pirson and Malhotra, 2008;
Prast, Teppa, and Smits, 2012) or qualify this statement by saying that transparency matters
only when basic trust conditions are met (Gärling et al., 2009).An open question is, of course,
whether this is really so in the case of pension providers. The organizational trust literature
offers some clues as to what may affect trust. For instance, Mayer, Davis, and Schoorman
(1995) make the claim that trust in organizations comes from fundamental character traits
which the members of an organization possess, like ability, benevolence and integrity. In a
review of trust in financial institutions in the wake of a crisis Gärling et al. (2009) extend this
claim by including factors such as transparency, value congruence and reputation of
organizations. In their view basic trust markers, such as ability, integrity and benevolence, are
so-called ‘dissatisfiers’: not satisfying these criteria makes it hard for organizations to be
perceived as credible and trustworthy. Markers such as the level of transparency or reputation
of an organization are at best traits that help to differentiate or position the organization in the
market for pensions. But more importantly, these markers are not going to generate
trustworthiness and compensate a decline in the basic trust markers of an organization.
Although these claims seem plausible, they have not been put to the test for the case of
financial institutions in the trust literature. In designing social policies it is important to know
which drivers are key and which markers are of minor importance. For instance, one can
design huge advertising campaigns or protocols on how to communicate but when perceived
integrity and competence are the root causes of distrust, money is ill spent.
This paper makes three contributions. First, we extend the body of trust research in
financial institutions by offering insight into the level of trust in a number of pension
providers in the Netherlands, specifically pension funds, banks and insurance companies.
5
These are the pension institutions, which are relevant for understanding the second and third
pillar of the pension system. Second, we examine the impact of the different drivers of trust
as mentioned in the organizational trust literature. And third, we show that there is a hierarchy
in trust drivers as suggested by Gärling et al. (2009).
The pension context is that of the Netherlands, a country which has received praise for
its pension system (Ambachtsheer, 2011), but which is also experiencing difficulties in
adjusting to structural changes in demography and the labour market. To understand the
basics of pension provision in the Netherlands we will first give some background
information on the Dutch system. Second, we will offer a brief overview of how to
operationalize trust based on the literature on trust in organizations. Third, we will present our
method and data on how we measured trust and the underlying drivers and subsequently
present the results of our statistical analysis. Finally, we will conclude with a summary and
discussion of the findings.
A bird’s eye view of the Dutch pension system
In order to understand the issue of trust in the Dutch context it is necessary to understand the
governance in pension plans and the key players that figure in the provision of pensions. In
the Netherlands most employees save and accumulate pension rights within a three pillar
system: (1) a basic public pension plan (the so-called ‘AOW’); (2) a mandatory
supplementary pension plan; and (3) individual voluntary pension savings.
First pillar
The first pillar offers every citizen of the Netherlands an equivalent benefit upon retirement.
As of January 2016, a gross benefit of 1,138 euros per month is received by single
individuals, and 784 euros is received by each member of a couple. The public pension is
financed on a pay-as-you-go manner. Part of the income tax is earmarked (17.9% of the first
30.000 euro on income) to generate the public pension income. In 2014 these public pension
premiums covered 69% of the public pension outlay. This deficit is funded by the government
from general fiscal means. Each resident accumulates for each year of residency (starting 50
years before the public pension age) in the Netherlands 1/50 pension rights. As mentioned
above pension premiums are levied over income earned and the government is responsible for
making sure that contributions and benefits are managed prudently and the day-to-day
6
management of this process is delegated to the Social Insurance Bank. With respect to
benefits, the main decision is whether or not to index pensions for (wage) inflation. The
credibility of public pensions therefore rests mainly with the (federal) government which
makes the key decisions. The most recent reform undertaken by the government concerns
raising the retirement age in steps from 65 (starting in the year 2012) to 67 years in 2021 and
from 2022 onward, the retirement age is automatically linked by the average life expectancy
(at age 65). Based on population forecasts this implies that by the year 2060 the public
pension retirement age would be 71.5 years.
Second pillar
The most complex pillar with respect to finance and governance is the second pillar, which
constitutes of occupational pension plans (see Chen and Beetsma (2015)). These plans are
agreed upon at a collective level between the so-called social partners: the employers or their
representative organization and the trade unions, which represent the employees. Employees
accrue pension rights which offer a supplementary income on top of the public pension.
However, employees face some restrictions in accumulating those rights. Whenever their
employer offers a supplementary pension program participation in that particular pension
provider is mandatory.
Although most Dutch employees accumulate their pension rights with pension funds, a
small and increasing number of employees are covered by insurance companies. Pension
funds are non-profit organizations, where key policy decisions are made by the so-called
social partners: the employer(s) or their representatives and trade unions which represent the
employees. Employees and pensioners of a pension fund can also be represented in the
participants’ council, which gives solicited and unsolicited advice to the board of directors.
However, in actual practice most funds (in 2014: 85%) have outsourced their administration
and/or asset management to for-profit pension organizations.
In the Netherlands approximately half of the pension premium is paid by the employer
and the other half by the employee. By and large most Dutch employees have a defined
benefit (DB) pension plan. In the past, these benefits were promised in terms of certain
percentage (usually 70-75%) of an employee’s final pay based on 40 years of contribution.
Over time, this ambition has been toned down to guaranteeing the benefit to a percentage of
the average pay over the employee’s career. And during the last ten years, pension funds have
come to realize that the promises they have made in the past were untenable. The increase in
7
life expectancy, the various crises on the stock market and since the Great Recession the
historically low interest rates have made it difficult to match assets with future liabilities.
Although most occupational pensions are characterized as DB plans, they can better be
characterized as collectively defined contribution (CDC) plans as most pension contracts
provide nominal guarantees, but the degree to which they are indexed depends on the funding
ratio, the ratio of the pension fund’s assets over its liabilities. Liabilities are computed by
discounting the future cash flows associated with the current stock of accumulated pension
rights against a risk-free market interest rate. This discount rate used to be 4% but as of 2012
the government has changed this rate to a market interest rate in order to free the system from
arbitrary rates which did not reflect conditions on the capital market. The development over
time of the funding ratio of Dutch pension funds is presented in Figure 1. This clearly shows
the effects of a number of crises on the sustainability of pension funds.
Figure 1: Average funding ratio of pension funds, The Netherlands 1987-2015
Source: CBS, Statline, Note: a score of a 100 means that the pension assets exactly meet the pension liabilities.
The 21st century has been a volatile period for pension funds which is a result of both the
credit crisis and the subsequent crash on the stock market (see also Casey (2012) ) as well as
the fall of interest rates to historically low levels. To interpret this figure one should know that
80
90
100
110
120
130
140
150
160
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
8
a funding ratio of 100 percent implies that pension funds have no resources to index the
pension rights of participants for inflation. And to guarantee the promise of a pension which
adjusts the value to the level of purchasing power, pension funds should have a funding ratio
of 145 (Van Ewijk and Teulings, 2011).
Third pillar
Finally, there is a third pillar in which individuals can privately accumulate pension savings in
case they find their pension inadequate. Voluntary pension savings are mainly effectuated
through banks and insurance companies. This pillar is expected to become more important for
a number of reasons. First, the government is pulling back as a (fiscal) sponsor for the second
pillar arrangements. It restricts the coverage of gross incomes up to 100,000 euros (per
annum) and political parties are hinting at lowering this income level to 70,000 euros or even
lower. If employees want to maintain their expected benefit replacement rate, they have to
save privately. Second, the number of self-employed individuals (without personnel) has
grown significantly over the past 10 years in the Netherlands and for this type of workers
there are in general no collective pension arrangements. However, many self-employed do not
make pension arrangements because the pension premium in the absence of the employer as
sponsor is twice as high as that of an employee. Third, the labour market has become more
flexible and this is expected to increase even more. This aspect makes that certain funding
practices that were well attuned to a labour market with low labour mobility and life-long
contracts are perceived as perverse solidarity. In particular, the rule of pension funds to levy a
contribution rate that is the same for all participants regardless of age, gender or income
(uniform premium), as well as a uniform accrual rate of pension rights is seen as a form of
perverse solidarity.
Regulation
The government has a dual role as regulator and as legislator. The task of regulating the
pension sector has been delegated to two institutions: the Dutch central bank (De
Nederlandsche Bank, DNB) and the Financial Markets Authority (AFM). The first institution
regulates and monitors the pension funds as stipulated in the Pension Act and the life
insurance companies as stipulated in the Financial Regulation Law. Financial prudence and
stability are key aspects on judging the performance of pension providers and in impact the
DNB is the most influential as it can force pension funds to change their policy if it is not
acting prudently. The AFM monitors the pension sector on actual behavior of pension
9
providers, in particular whether participants receive correct information and whether
providers act in the interest of consumers.
Trust in pension providers
The examination of trust in pension providers relies on a diverse body of literature on trust in
organizations and institutions (Mayer et al., 1995; Vickerstaff et al., 2012), which draws on
insights of disciplines like economics, marketing, sociology, psychology, management and
political science. The core of the matter in measuring and explaining trust revolves around the
assumption that trust is both a trait of the trustee perceived trustworthiness - as well as the
person who has to trust others the propensity to trust (cf. Mayer et al. (1995)). The
perceived trustworthiness is shown to consist of a multitude of characteristics, although in
most studies the elements of ability, benevolence and integrity are central to understanding
trust (Mayer et al., 1995; Pirson and Malhotra, 2008; Vickerstaff et al., 2012). However, it is
believed that financial institutions merit a more special focus, perhaps because money more
than other services or commodities - is deep down a matter of trust. In a review on the
underlying determinants of trust in financial institutions Gärling et al. (2009) arrive at a
number of drivers that relate to the general literature on organizational trust but which also
includes other factors. We have used or made these drivers more specific to measure the
drivers of trust in pension institutions. This amounts to the following set of trust drivers:
Stability: stability is a trait that is pivotal in the financial economist’s eye as pension
finance revolves around managing assets and liabilities and the reputation as a pension
provider depends crucially on delivering what was initially promised. Pension
contracts in the Netherlands are by and large defined benefit contracts. Hence being
perceived as a stable provider might be seen as a reflection of the ability of a pension
provider. Stability or predictability is expected to be intimately related to trust,
although the two should be not be seen as equivalent concepts. One can act in a
predictable and stable manner, but if these actions are detrimental to the interests of
the participants one is not likely to be trusted. Hence, stability should be
complemented by other drivers, as listed below.
Competence is the perceived ability of pension providers, or more specific the group
of skills, competencies, and characteristics that enable a pension provider to offer a
satisfactory level of services within the domain of pensions. This could be the
10
knowledge of the financial products and the ability to spread risks and hence to attain
a smooth level of pension premiums and benefits.
Integrity is described in more general terms by Mayer et al. (1995) who define
integrity as “the trustor’s perception that the trustee adheres to a set of principles that
the trustor finds acceptable.” In applying the element of integrity to the financial
sector, Gärling et al. (2009) describe it as “honesty and carefulness in procedures and
treating all customers in the same way”.
Benevolence is the extent to which a trustee is believed to want to do good to the
trustor, or who puts the interest of the trustor at least on an equal footing with their
own interest. It is an element which is very much stressed by Shiller (2013) who
claims that only business which serve their customers well will stay in business. It
may involve giving advice and communicating from the client’s perspective and
genuinely taking their interests at heart and not solely taking the perspective of the
pension provider.
Transparency is defined in this paper as the quality by which a trustee reports to and
communicates with the trustor. Transparency in general has more dimensions as it is
said to cover both openness and the use of understandable information. It can also be
seen as an indicator of integrity and benevolence. Being open and clear about what is
going on inside an organization is a signal that an organization has nothing to hide.
And offering complete and clear information about liabilities, procedures and inherent
risks tied to products may be seen as a sign of benevolence as such actions show that
organizations take the customer seriously.
Social responsibility: this trait could signify to stakeholders the level to which an
organization is concerned with its own core competencies and priorities and therefore
focuses on its own interest and stakeholders (Friedman, 1970) or whether it also takes
a broader social concern into account in making decisions. By assessing this element
in conjunction with the other markers, one might be able to uncover signs of value
congruence (cf. how Gärling et al. (2009) use social responsibility as such) when
organizations are perceived to take the perspective of society and not merely its own
interests into account.
In examining trust in pension providers we arrive at the following hypothesis:
11
Trustworthiness hypothesis: Trust in pension providers (pension funds, banks and insurance
companies) is positively associated with indicators of their perceived competence, stability,
benevolence, integrity, transparency and social responsibility.
It is a straightforward hypothesis that can be put to the test. However, there is a
second hypothesis which relates to the relative importance of the various factors. Gärling et
al. (2009) claim that the first four trust drivers stability, integrity, competence and
benevolence are key to financial institutions. They are called ‘dissatisfiers’ (following the
terminology of Herzberg, Mausner, and Snyderman (1959)). Often mentioned trust drivers
like transparency or social responsibility can only be of value to a financial institution when
the first four drivers are assessed in a positive manner. They are what Gärling et al. (2009)
call satisfiers. By examining this sub-hypothesis one essentially focuses on the importance
of size effects of the separate drivers of trust.
Hierarchy-in-trust hypothesis: The perceived competence, stability, benevolence and integrity
of pension providers are far more important than the perceived transparency and social
responsibility of pension providers in generating trust.
In testing our hypotheses, we will use a set of social demographic characteristic as
control variables, to account for the fact that people differ in their propensity to trust pension
providers.
Methods and data
Sampling and Participants
In June 2014 a survey was carried out among pension participants in the Netherlands, (N =
2,103, response rate 69%). For our purposes we focused solely on people who had
accumulated pension rights at a pension fund (N = 1,735). The survey was conducted by the
CentERdata, a survey institute of Tilburg University that maintains a large panel of
households in the Netherlands (for details, see http://www.centerdata.nl/en/). The panel is
representative of the Dutch population with respect to sex, age, education, and regional
variation. Members of the panel are all interviewed through an Internet connection.
Participants who do not have Internet access are provided with a facility by CentERdata,
allowing them to access the Internet through their televisions. Households that do not have a
television set are given one by CentERdata to facilitate the data collection process. As such,
there is no selectivity with regard to whether people have access to Internet or not. In general,
12
people participate for about four years on the panel, during which time they are interviewed
regularly on a variety of different topics. When a respondent leaves the panel, a new
respondent is selected on the basis of matched socio-demographic characteristics, so that
representativeness of the sample will be maintained.
Variables
As dependent variable we measured respondents’ perceived trust in three types of pension
providers: pension funds, banks and insurance companies. We asked the following question
“To what extent do you trust [pension funds/banks/insurance companies] in guaranteeing a
comfortable pension?”; answer categories are (1) no trust; (2) little trust; (3) neutral; (4) some
trust; (5) a lot of trust. Hence we ask respondent s to express their trust in pension providers in
general and not their own pension fund or their own insurance company.
As explanatory variables the following set of variables is used:
Drivers of trustworthiness. We asked respondents the following question: “How
would you characterize [pension funds/banks/insurance companies] in terms of the
following elements?” Six elements of trustworthiness of pension providers were
assessed by participants: (1) stability; (2) integrity; (3) competence; (4) benevolence;
(5) transparency; and (6) social responsibility. For each of the trust drivers the
respondents were asked to assess the three pension providers on a five-point scale.
For instance, for the dimension stability they could assess a pension provider as
unstable (-2, -1), neutral (0), or stable (+1, +2); the values -1 and +1 are interpreted as
moderate values of specific elements of trust. For each of these trust markers we
created four dummy variables. For example for the case of stability the dummy
variables included “unstable”, “moderately unstable”, “moderately stable, and
“stable”. The category neutral served as a reference category. Control variables. To
control for the characteristics of the trustor who makes the judgement of
trustworthiness we use three variables: (1) age (in years); (2) education (three levels:
low, middle and high); (3) gender.
Table 1 presents the descriptive statistics for the entire sample used in this study. The average
pension participants is 52 years old, there are slightly more men than women in the sample
and the percentage of higher educated is higher than the national average, which stands to
13
reason, as we only focus on pension participants, i.e. people who accumulate pension rights in
the second pillar.
Table 1: Descriptive statistics
Pension funds
Insurance companies
Organization level
variables
Means
St. dev.
Means
St. dev.
Means
St. dev.
Trust*
3.35
1.06
2.91a
1.00
2.79a,b
1.00
Trust markers*
Stability
0.09
1.00
-0.08a
0.97
0.05b
0.90
Integrity
0.24
0.94
-0.36a
0.95
-0.34a
0.91
Competence
0.35
0.92
0.30
0.90
0.31
0.86
Benevolence
-0.05
1.07
-0.93a
1.01
-0.83a,b
1.00
Transparency
-0.02
1.02
-0.37a
0.92
-0.43a,b
0.90
Social reponsibility
0.10
0.97
-0.48a
0.95
-0.43a
0.87
Individual level
variables
Age categories (years)
52.47
15.87
52.47
15.87
52.47
15.87
Gender (male = 0)
0.45
0.50
0.45
0.50
0.45
0.50
Education (3 cat.)
2.25
0.80
2.25
0.80
2.25
0.80
N = 1735.
* Note: In the table significant differences (p < 0.05) between the means of the trust variables and trust markers
are denoted by (a) where the pension funds are used as benchmark and (b) with differences between banks and
insurance companies. The trust variable is a 5-point variable 1-5. The evaluation of trust markers is based on a
five-point scale -2, -2, 0, +1, +2.
The assessed level of trust are of a qualitative or ordinal nature and to analyse the trust
assessments of respondents properly we use ordered logit analysis.
Explaining trust in pension providers
In the Netherlands trust in pension institutions has shown to be characterized by a marked
swing in ups and downs, but also by a consistency in evaluation across the various providers.
Over the years we have tracked the development of trust of various pension providers and
Table 2 shows the development over time of the most prominent institutions between 2004
and 2014.
14
Table 2: Trust in pension institutions, 2004-2014 (percentage of the general population
who (very much) trust specific institutions)
2004
2006
2009
2011
2014
Pension funds
53
64
44
42
48
Banks
32*
37*
25
34
30
Insurance companies
32*
37*
18
20
25
Government
37
42
45
41
41
* In 2004 and 2006 the trust question was posed for jointly for banks and insurance companies as a lot of large
corporations at that time were conglomerates offering both insurance and banking services. After the crisis some
organizations unraveled and to reflect this trend a separate trust question was posed for both banks and insurance
companies.
Source data: NIDI (2004-2014)
To offer a benchmark in the comparison of institutions we also include the government as the
provider of public pensions. Government is moderately trusted and there was only one period
in which the government was seen as the most trusted institution and that was in the midst of
the credit crisis, when virtually all Dutch banks had to be supported by government
guarantees and some were even nationalized (like the bank ABN AMRO) as they were seen
as a risk to the (Dutch) financial system. However, the most notable observation of Table 2 is
that for each and every year banks and insurance companies are seen as far less trustworthy
compared to pension funds.
To get a deeper understanding of why pension funds differ markedly from banks or
insurance companies we have asked pension participants to characterize the various pension
providers relevant in the second pillar of the pension system along the six dimensions as
suggested by Gärling et al. (2009). The result of this characterization can be found in Table 3.
Although the providers share some similarities in the eyes of participants, one can see the
pension funds as a whole are evaluated markedly different from banks and insurance
companies. In particular with respect to traits such as integrity and benevolence pension funds
are clearly seen as institutions which are more honest and more engaged to put the customer’s
position first than banks or insurance companies. For example, only a small minority of
respondents view pension funds as dishonest (4.3%) or moderately dishonest (14.3%). The
corresponding percentages for banks (12.3% and 31.2%) and insurance companies (10.3%
and 32.0%) are far more negative. Some differences can also be traced in terms of
transparency and social responsibility, with pension funds being more transparent and acting
15
more socially responsible than banks and insurance companies. With respect to stability the
three institutions do not differ much: for each institution the participants are more or less
divided about how stable these institutions are. The same can be said of the assessed
competence of the three pension providers. This observation suggests that competence and
stability are both elements that approximate the ability of these institutions.
Table 3: Trust in financial intermediaries in pensions by pension participants
Characteristics
Evaluation
Stability
Unstable
Moderate
Neutral
Moderate
Stable
Total
Pension funds
6.2
21.8
35.7
30.1
6.3
100.0
Banks
7.8
25.8
35.9
27.9
2.5
100.0
Insurance
4.6
21.4
41.1
29.0
3.2
100.0
Integrity
Dishonest
Moderate
Neutral
Moderate
Honest
Pension funds
4.3
14.3
42.0
31.6
7.8
100.0
Banks
12.3
31.2
38.4
16.3
1.7
100.0
Insurance
10.3
32.0
40.9
15.2
1.6
100.0
Competency
Incompetent
Moderate
Neutral
Moderate
Competent
Pension funds
3.1
13.0
38.5
36.5
8.9
100.0
Banks
3.9
11.7
41.4
36.3
6.8
100.0
Insurance
3.2
10.6
44.7
35.5
6.1
100.0
Benevolence
Focused on
organization’s
interest
Moderate
Neutral
Moderate
Focused on
customer’s
interest
Pension funds
10.4
21.4
37.4
24.1
6.7
100.0
Banks
34.3
36.2
19.2
8.8
1.5
100.0
Insurance
28.3
38.6
22.0
9.6
1.5
100.0
Transparency
Unclear
communication
Moderate
Neutral
Moderate
Clear
communication
Pension funds
8.6
21.6
38.8
25.3
5.8
100.0
Banks
11.4
32.4
39.7
14.9
1.6
100.0
Insurance
12.1
34.2
39.9
12.4
1.4
100.0
Social
responsibility
Not socially
responsible
Moderate
Neutral
Moderate
Socially
responsible
Pension funds
6.0
16.0
45.4
27.4
5.2
100.0
Banks
16.1
31.1
38.4
13.3
1.2
100.0
Insurance
13.0
30.4
44.6
11.0
1.0
100.0
N = 1735
In order to examine the determinants of trust, we formulated two hypotheses. The
trustworthiness hypothesis assumes that all six traits of organizations are - at some level
positively associated with trust in pension providers . The hierarchy of trust hypothesis
predicts that the dissatisfiers, like stability, integrity, competence and benevolence, are far
16
more important than the satisfiers, like transparency and social responsibility. The results of
the ordered logit analyses to test these hypotheses are presented in Table 4.
Table 4: Ordered logit analysis of trust in pension institutions by pension participants
Trust of pension participants in:
Pension funds
Banks
Insurance companies
(1)
(2)
(3)
Characteristics institutions:
Coëf.
t-value
Coëf.
t-value
Coëf.
t-value
Stability (neutral = 0)
Unstable
-1.98**
6.64
-1.00**
3.82
-0.65*
2.11
Moderately unstable
-0.89**
6.02
-0.34*
2.49
-0.19
1.36
Moderately stable
0.65**
4.39
0.72**
5.30
0.72**
5.48
Stable
1.16**
3.96
1.41**
3.44
0.35
1.02
Integrity (neutral = 0)
Dishonest
-1.59**
4.24
-1.46**
6.07
-1.78**
6.99
Moderately dishonest
-0.81**
4.55
-0.76**
5.45
-0.93
6.86
Moderately honest
0.50**
3.34
0.71**
4.25
0.73
4.33
Honest
1.43**
4.86
0.82
1.56
2.14**
3.80
Competence (neutral = 0)
Incompetent
-0.89*
2.13
-0.30
0.93
-0.54
1.51
Moderately incompetent
0.03
0.19
-0.14
0.82
0.04
0.21
Moderately competent
0.68**
5.02
0.27*
2.25
0.24*
1.94
Competent
1.36**
5.32
0.55*
2.27
0.14
0.54
Benevolence (neutral = 0)
Interest organization first
-0.63*
2.53
-0.58**
3.17
-0.94**
4.98
Moderately organ. first
-0.18
1.23
-0.06
0.43
-0.45**
3.18
Moderately cust. first
0.25
1.72
-0.37
1.76
-0.28
1.43
Interest customer first
0.63*
2.15
0.40
0.83
-0.45
0.94
Transparency (neutral =0)
Unclear communication
0.20
0.86
-0.20
0.91
-0.35
1.55
Moderately unclear
-0.01
0.04
-0.08
0.65
0.07
0.55
Moderately clear
0.26
1.75
0.28
1.61
0.08
0.45
Clear communication
-0.17
0.58
0.58
1.12
-0.06
0.10
Social responsibility (neutral=0)
Not socially responsible
-0.23
0.77
-0.54*
2.73
-0.51*
2.31
Moderately not responsible
-0.28
1.65
0.19
1.42
-0.06
0.46
Moderately responsible
0.20
1.35
0.35
1.89
0.58**
3.01
Socially responsible
0.63
1.85
1.28
2.04
0.89
1.40
Control variables:
Education (low = 0)
Middle
0.26
1.88
0.34**
2.55
0.32*
2.37
High
0.59**
4.62
0.52**
4.22
0.21
1.71
Gender (male = 0)
-0.22*
2.19
-0.07
0.71
-0.04
0.37
Age (in years)
0.03**
8.10
0.00
0.49
-0.01
1.82
Controlled for randomization
questionsa
Pseudo R2
0.29
0.21
0.19
N =
1735
1735
1733
‡ < 0.1 * p < 0.05; ** p < 0.01.
(a) To come to independent assessment of the pension providers, we randomized the order in which one of the
three providers appeared to respondents. In the statistical analysis we controlled for this as the order of one of
these providers might affect the outcome of the assessments.
17
The overall outcome of this test is that we find strong support for our first hypothesis the
trustworthiness hypothesis. Most of the traits of organizations are - at some level -
positively associated with drivers of trust in pension providers.
1
In particular, stability,
integrity, competence, benevolence and social responsibility proved to be a statistically
significant predictor of trust. The notable exception is the level of transparency the level of
communication of organizations is not significantly (at p < 0.05) associated with trust in the
three organizations.
The first column of Table 4 presents the analysis of trust in pension funds and these
results show all drivers are of some influence, although clearly stability and integrity are
dominating factors, whereas the influence of transparency and social responsibility is weak.
With respect to the dominating factors for pension funds one should note that trust is
especially vulnerable to perceptions of integrity and stability. The coefficient for being
unstable in the case of pension funds is a factor 1.7 larger than the coefficient for being stable
and this asymmetry suggests that participants ‘punish’ pension funds more heavily for
perceived instability, whereas for the other drivers one can detect more symmetrical effects.
The control variables - education, gender and age are statistically significant in the
case of pension funds. The higher educated are more trusting towards pensions funds, and the
same applies to male participants. It is well known within the literature on generalized trust
that the educational level or intelligence is positively associated with trust (Carl and Billari,
2014, Glaeser, Laibson, Scheinkman, Soutter, 2000). This finding may be a reflection of the
complexity of the pension industry, which is perhaps easier for higher educated and more
financially literate to grasp than for the lower educated (Lusardi and Mitchell, 2014).
The fact that age plays a significant role in trusting pension funds may perhaps be a
reflection of the status quo: by and large, pension funds have been the default intermediary to
arrange a supplementary pension and up and till the credit crisis pension funds had been
highly trusted institutions that could always make good on their promises. And finally, it
could also be a reflection of the fact that the older participants are relatively better off in terms
of their pension package and rights compared to younger generations, who face an uncertain
future.
1
We have checked for possible multicollinearity in the explanatory factors by carrying out variance inflation
factors (vif) and for all trust markers the vifs were 2 or lower, which is well below to the limiting benchmark
values often used in statistics (O’Brien, 2007), suggesting that multicollinearity is not a problem in carrying out
the ordered logit analysis.
18
The second and third columns show the results for trust in banks, respectively
insurance companies. The weights attached to stability, integrity and competence are very
much alike for these two providers. It is however, noteworthy to see that the both institutions
are evaluated equally negative in terms of benevolence, the insurance companies are
‘punished’ for this assessment in terms of trust, whereas banks are not. The fact that this
asymmetry is clearly visible for the case of insurance companies when one focuses on
benevolence is also telling and understandable. Insurance companies and banks have a history
in the Netherlands of miss-selling insurance products starting in 1990s (van Dijk, Bijlsma,
and Pomp, 2008) and resolving this scandal is still going on today.
2
The different weights
may also be the result of the fact that participants can leave a bank when they are dissatisfied
about their services, but the relationship with insurance companies (and this applies also to
pension funds) refer generally to contracts which cover a lifetime. Putting the interests of
customers first is in that case pivotal to trusting such providers. Perhaps that also explains
why social responsibility is more important in the case of insurance companies than in the
case of banks. It suggests that value congruence is a factor that could be decisive factor for
insurance companies in establishing trust with pension consumers. A final remark with
respect to the propensity to trust in the case of banks and insurance companies. Age and
gender do not play a role of significance. However, just like the case of pension funds, the
educational level of trustors matters and this is a robust finding across all pension providers:
the higher educated are far more trusting of these institutions than the lower educated.
The size and significance of the various factors in Table 4 suggest that stability and
integrity are the most important factors in the establishment of trust and thereby provide
support for the hierarchy-in-trust hypothesis. To illustrate the relevant hypotheses of drivers
for the various pension providers we carried out a simulation analysis (see Table 5) based on
the ordered logit estimates of Table 4.
Column 1 of this table offers the sample means as a benchmark. The real test of the
hierarchy-in-trust hypothesis is to see whether trust can be substantially improved by factors
like transparency or social responsibility (‘satisfiers’) when the key drivers or trust – stability,
integrity, competence and benevolence (‘dissatisfiers’) – are assessed very negatively.
2
A similar conclusion about banks can be found in Jansen et al. (2014). Although they do not speak of fairness
or honesty the high remuneration packages in the banking sector are seen as a very negative element by
consumers.
19
Table 5: Simulated trust levels for a number of scenarios with respect to trust markersa
Sample means
Dissatisfiers = very
negative, satisfiers =
neutral
Dissatisfiers = very
negative, satisfiers =
very positive
Trust levels in:
(1)
(2)
(3)
Pension funds
No trust
0.04
0.57
0.46
Little trust
0.21
0.40
0.49
Neutral
0.24
0.03
0.04
Some trust
0.38
0.00
0.01
A lot of trust
0.13
0.00
0.00
Banks
No trust
0.07
0.33
0.07
Little trust
0.30
0.56
0.49
Neutral
0.33
0.09
0.35
Some trust
0.26
0.02
0.09
A lot of trust
0.04
0.00
0.00
Insurance companies
No trust
0.08
0.47
0.28
Little trust
0.34
0.48
0.60
Neutral
0.33
0.05
0.10
Some trust
0.22
0.01
0.02
A lot of trust
0.03
0.00
0.00
(a) Dissatisfiers = stability, integrity, competence, benevolence; Satisfiers = transparency, social responsibility.
Column 2 shows what happens when the key drivers are very negative and the satisfiers are
neutral. One can see for all pension providers that distrust is the distinguishing outcome of
such a constellation. And this column should be compared to column 3 which shows the
movement from a neutral position to a very positive assessment of the satisfiers. For instance,
the group of pension participants that perceive the core values of a pension fund stability,
integrity, competence and benevolence very negatively and who are neutral with respect to
the satisfiers (transparency and social responsibility) has little (40 percent) to no trust (57
percent). When we assume that their view become very positive with respect to the satisfiers,
the overall stance of this group is still very distrustful: 49 percent has little trust and 46
percent has no trust. The effect of these movements in trust drivers does not lead to a
fundamental change in trust most participants remain distrustful , which can be seen as
further support for our hierarchical trust hypothesis : there exists a hierarchy in trust drivers.
Trying to repair a bad reputation by solely claiming excellence in transparency or by being
20
socially responsible is not going to generate trust at a very deep level. People only become
slightly less distrustful.
Conclusions and discussion
The idea that trust is pivotal to the wealth of nations, organizations and individuals is slowly
but gradually gaining recognition. Without trust transactions break down or can only be
facilitated at very high transaction costs (Williamson, 1993). The incompleteness of
contractual arrangements is a facet of everyday life, but it is especially prevalent in the
domain of pensions where governments and financial intermediaries provide contracts which
rely on financial obligations which covers a large part of the life course of individuals. Such
obligations are bound to be imprecise as numerous risks (inflation, longevity, bankruptcy,
interest rates, etc.) can become real and distinct. Trust is therefore crucial for the functioning
of pension systems or more broadly the financial industry (Van Raaij, 2016). Trust is a
complex phenomenon and this complexity is also reflected in the diverse theoretical and
empirical approaches in capturing the “elusive notion of trust” (Gambetta, 1988). To unravel
this elusive notion we have made the effort to focus on the drivers of trust that are often
ascribed to financial intermediaries (Gärling et al., 2009). This paper has three findings to
offer that are of interest to both academics and practitioners.
First, we show by means of a survey among pension participants in the Netherlands
that underlying core traits of pension institutions, such as ability, integrity, benevolence,
competence, matter.
Second, within the set of drivers of trust stability and integrity are the most important
indicators, followed by the benevolence, competence and social responsibility of pension
providers. Transparency is often stressed by corporate executives in building trust as being of
significant importance, but in our estimations it is of little or no importance.
A third finding, is that trust is not solely a reflection of the pension provider the
trustee - but also of the person who gives trust the trustor. A robust finding across all
pension providers is that higher educated are far more trusting of these institutions than the
lower educated. And in the case of pension funds, it appears that the older participants are
significantly more trusting than younger age groups. Whether this is a trait tied to generations
or age groups cannot be discerned based on a cross-sectional survey.
21
Limitations
In this paper we restricted our attention to six drivers - of which some of these drivers deserve
a more in-depth treatment as there may be more dimensions than meets the eye. For instance,
transparency is often translated into the quality of communication of an organization, but the
value of being open and frank about one’s policies may also be a sign of integrity.
A second limitation is that the survey has a cross-sectional setup which limits our
focus to understand how trust differs between persons. A natural and more interesting
extension of this research would be to focus on the differences within persons or how trust
develops within a person. As Vickerstaff et al. (2012) also notice in their review of the
literature it is important to see how trust is gained, sustained or lost. This makes a longitudinal
setup necessary.
A third limitation is that we have not developed variables that might approximate the
propensity to trust. People with different experiences, cultural backgrounds, education, or
personality types will vary in their propensity to trust or their general willingness to trust
others. The same may be applicable to the issue of pension finance. To trust an organization
to handle your affairs depends on your experience, your acknowledgement that others might
know better and, for instance, whether you have some anxiety in disclosing information to
others (Van Dalen, Henkens and Hershey, 2017). In theory the propensity to trust is how one
in general trusts other people or organizations (Mayer et al., 1995). However, such a measure
is bound to be correlated with the specific trust in pension providers and for the purpose of
this paper we have handled it by controlling for a variety of factors which might indirectly
capture these influences.
Discussion
The key findings offer food for thought, in particular for financial organizations as the credit
crunch and the ensuing crisis have been detrimental to their trustworthiness. The problems
and dilemmas are not specific to the Dutch pension system and can be encountered in many
countries. Most organizations immediately respond to declines in trust by claiming that they
should be more transparent and consultants are apt to cater to those needs. Listen to what,
e.g., CEO Nilsson of a UK pension consultancy firm has to say:
“The UK pensions market has suffered from high costs, lack of alignment of interests, and poor
performance for many years, which has led to a lack of trust in the industry. The key issue here is
22
the lack of transparency when it comes to charges. Many savers do not realize the true costs of
their pensions as the charges are hidden or presented in such a way as to suggest they are not as
harmful, while in reality they continue to eat into savings of millions of those saving for
retirement.” (stated on 18 July, 2012)
The quote does not serve to downplay the importance of transparency which is a real issue -
but it demonstrates how professionals inside the pension industry make tacit claims about
drivers of trust and their assumed importance. As Pirson and Malhotra (2008) have argued
transparency is an overrated element in building trust and other elements of trust should be at
the center of attention. Furthermore, Kirby (2012) makes a point that is of some importance in
an age in which risks and decisions are shifted towards individuals: “The real problem might
be that, as time goes on, consumers are increasingly being placed in situations where they are
forced to trustand they resent that.” When this is the case, integrity of an organization may
very well be of far greater importance to clients than an organization that is completely
transparent in reporting its business model and the underlying costs or charges. Most
consumers may simply be not interested in reading this information as that they are either
unable to comprehend the wealth of information or because they rather focus and spend their
time on more pressing problems (Mullainathan and Shafir, 2013). This paper is one of the
first to suggest that in the greater scheme of establishing trust (perceived) integrity and
stability are key traits on which pension participants base their trust.
3
However, one should
also be aware that part of the trust or distrust people have in pension providers is hard wired
and connected to their propensity to trust. In other words, organizations which try to become
trustworthy by investing in aspects of integrity or stability will only partially reap the benefits
of this strategy as increasing trustworthiness depends also on the trustors their clientele -
and not entirely on the trustee.
3
There are some similar approaches in financial services marketing, like the Financial Trust Index run by the
Nottingham University Business School (see, e.g., (Ennew and Sekhon, 2007)), although they do not, as
proposed by Gärling et al. (2009), include stability as a trust driver and they are also not focused on pension
finance.
23
References
Ambachtsheer, K. P. (2011) Pension Revolution: A Solution to the Pensions Crisis, New
York: John Wiley and Sons.
Berggren, N., and Jordahl, H. (2006) Free to trust: Economic freedom and social capital’,
Kyklos, 59(2), 141-169.
Besley, T., and Prat, A. (2005) Credible Pensions’, Fiscal Studies, 26(1), 119-135.
Beugelsdijk, S., De Groot, H. L., and Van Schaik, A. B. (2004) ‘Trust and economic growth:
a robustness analysis’, Oxford Economic Papers, 56(1), 118-134.
Carl, N., and Billari, F.C. (2014) ‘Generalized trust and intelligence in the United States’,
PloS One, 9(3), e91786. doi.org/10.1371/journal.pone.0091786
Casey, B. H. (2012) ‘The implications of the economic crisis for pensions and pension policy
in Europe’, Global Social Policy, 12(3), 246-265.
Chen, D., and Beetsma, R. (2015). Mandatory Participation in Occupational Pension
Schemes in the Netherlands and Other Countries’, Netspar Discussion Paper, Tilburg.
Ennew, C., and Sekhon, H. (2007) ‘Measuring trust in financial services: The trust index’,
Consumer Policy Review, 17(2), 62.
Friedman, M. (1970) ‘The social responsibility of business is to increase its profits’ New York
Times, 122-124.
Gambetta, D. (1988), Trust: Making and Breaking Cooperative Relations, Oxford: Basil
Blackwell.
Gärling, T., Kirchler, E., Lewis, A., and Van Raaij, F. (2009) Psychology, financial decision
making, and financial crises’, Psychological Science in the Public Interest, 10(1), 1-
47.
Glaeser, E.L., Laibson, D.I., Scheinkman, J.A., and Soutter, C. L. (2000) ‘Measuring trust’,
Quarterly Journal of Economics, 115(3), 811-846.
Henkens, K., Van Dalen, H.P., Ekerdt, D.J., Hershey, D.A., Hyde, M., Radl, J., Van Solinge,
H., Wang, M. & Zacher, H. (2017), What we need to know about retirement: Pressing
issues for the coming decade. The Gerontologist, first online.
Herzberg, F., Mausner, B., and Snyderman, B. (1959). The Motivation to Work. New York:
Wiley.
Hyde, M., Dixon, J., and Drover, G. (2007) Assessing the capacity of pension institutions to
build and sustain trust: a multidimensional conceptual framework’, Journal of Social
Policy, 36(3), 457.
24
Jansen, D.-J., Mosch, R. H., and van der Cruijsen, C. A. (2015) ‘When does the general
public lose trust in banks?’, Journal of Financial Services Research, 48(2), 127-141.
Kirby, J. (2012) Trust in the age of transparency’, Harvard Business Review.
Lusardi, A., and Mitchell, O. S. (2014) The economic importance of financial literacy:
Theory and evidence’, Journal of Economic Literature, 52(1), 5-44.
Mayer, R. C., Davis, J. H., and Schoorman, F. D. (1995) ‘An integrative model of
organizational trust’, Academy of management review, 20(3), 709-734.
Mullainathan, S., and Shafir, E. (2013). Scarcity: Why Having Too Little Means so Much.
London: Macmillan.
O’Brien, R. M. (2007) ‘A caution regarding rules of thumb for variance inflation factors’,
Quality and Quantity, 41(5), 673-690.
OECD. (2013). Pensions at a Glance 2013. Paris: OECD.
Pirson, M., and Malhotra, D. (2008) Unconventional Insights for Managing Stakeholder
Trust’, MIT Sloan Management Review, 49(4), 43-50.
Prast, H., Teppa, F., and Smits, A. (2012), ‘Is information overrated? Evidence from the
pension domain’, Netspar Discussion paper, Tilburg.
Quinn, J. F., and Cahill, K. E. (2016), ‘The New World of Retirement Income Security in
America’, American Psychologist, 71(4), 321-333.
Schanz, K.-U. (2009) ‘Maintaining stakeholder trust in difficult times: some fundamental
reflections in light of the credit crisis’, Geneva Papers on Risk and Insurance Issues
and Practice, 34(2), 260-270.
Shiller, R. J. (2013). Finance and the Good Society, NJ: Princeton University Press.
Taylor-Gooby, P. (2005) Uncertainty, trust and pensions: The case of the current UK
reforms’, Social Policy and Administration, 39(3), 217-232.
Van Dalen, H.P., Henkens, K. and Hershey, D.A. (2017) Why Do Older Adults Avoid
Seeking Financial Advice? Adviser Anxiety in the Netherlands, Ageing and Society,
37(6), pp. 1268-1290. DOI: http://dx.doi.org/10.1017/S0144686X16000222
Van der Cruijsen, C., de Haan, J., and Jansen, D.-J. (2016) ‘Trust and financial crisis
experiences’, Social Indicators Research, 127(2), 577-600.
Van Dijk, M., Bijlsma, M., and Pomp, M. (2008) ‘The price of free advice’, Applied
Economics, 40(14), 1889-1903.
Van Ewijk, C., and Teulings, C. (2011) ‘Nieuw pensioencontract onvermijdelijk’ (translation
‘The inevitability of a new pension contract’) CPB Policy Brief(2011/01), The Hague.
25
Van Raaij, W. F. (2016) Confidence and Trust Understanding Consumer Financial
Behavior (pp. 159-171): Springer.
Vickerstaff, S., Macvarish, J., Taylor-Gooby, P., Loretto, W., and Harrison, T. (2012) Trust
and confidence in pensions: A literature review. Department for Work and Pensions
Working Paper(108).
Williamson, O. E. (1993) ‘Calculativeness, trust, and economic organization’, Journal of Law
and Economics, 36(1), 453-486.
Zak, P. J., and Knack, S. (2001) ‘Trust and Growth’ Economic Journal, 111(470), 295-321.
ResearchGate has not been able to resolve any citations for this publication.
Article
Full-text available
The current landscape of retirement is changing dramatically as population aging becomes increasingly visible. This review of pressing retirement issues advocates research on (1) changing meanings of retirement; (2) impact of technology; (3) the role of housing in retirement; (4) human resource strategies; (5) adjustment to changing retirement policies; (6) the pension industry; and (7) the role of ethnic diversity in retirement.
Article
Full-text available
Why is it that many people fail to seek retirement planning advice when doing so is clearly indicated? Distrust of financial intermediaries is often presented as the common answer. But this paper shows that trust issues are only part of the answer; an appreciable proportion of individuals experience anxiety at the prospect of visiting a financial adviser. In the present investigation, financial adviser anxiety is studied among 950 Dutch adults over the age of 50. Anxiety levels were measured using a six-item scale that was administered as part of a larger nationwide investigation on retirement attitudes and behaviour. Findings revealed that nearly one-third of respondents reported having moderate to severe levels of anxiety at the prospect of visiting a financial professional. Furthermore, a hierarchical regression analysis revealed that strong predictors of anxiety included one's educational level, income, age, level of future time perspective, risk tolerance, financial knowledge and scepticism regarding whether advice from a financial professional can be trusted. A cluster analysis using demographic and psychological covariates identified three separate groups of older adults that were found to differ in terms of their mean level of anxiety. Those who had low levels of education and low incomes were found to disproportionately display high levels of financial adviser anxiety.
Article
Full-text available
ew would disagree with the proposition that trust plays a central role in the way in which financial services organisations present themselves to their customers. Intangibility, product complexity, and the long term nature of many products mean that cus- tomers face high levels of risk in making purchase deci- sions; they will often have difficulty in judging product performance and will need to trust financial services institutions (FSIs) - whether providers or advisers - to offer products of an appropriate type and quality. Analysis of the UK retail financial services market sug- gests that trust in a financial adviser may be more important than the adviser's status', that there is an association between purchasing and positive views of the industry^ and that familiarity and brand name are important correlates of trust and trustworthiness.^ Similarly, in North America, the Banking Association Chairman, Ken Fergeson noted that survey evidence suggested that 'more than half of bank customers believe that having a relationship of trust with their financial institution is more important than getting the best value for money'.'' However, there is also evidence to suggest, that levels of trust may be a cause for concern. In the UK, there is increasing anxiety about declining levels of consumer trust in financial services; perceived industry mal-practice (for example, mis-selling of pensions, endowments and related products) and the impact of stock market difficulties in the early part of the current decade are thought to have had a significant negative impact on consumer trust and confidence.^ Fines in the region of £75m imposed on firms in industry by the Financial Services Authority (FSA) since early 2002^ and estimated compensation costs running into hundreds of millions would tend to reinforce these perceptions. Most recently, the fact that the FSA has announced a commitment to increase consumer confi- dence would tend to confirm the difficulties that the industry faces in relation to trust.
Article
Government policies, marketing campaigns of banks, insurance companies, and other financial institutions, and consumers’ protective actions all depend on assumptions about consumer financial behavior. Unfortunately, many consumers have no or little knowledge of budgeting, financial products, and financial planning. It is therefore important that organizations and market authorities know why consumers spend, borrow, insure, invest, and save for their retirement - or why they do not. Understanding Consumer Financial Behavior provides a systemic economic and behavioral approach to the way people handle their finances. It discusses the different types of financial behaviors consumers may engage in and explores the psychological explanations for their behavior and choices. This exciting new book is essential reading for scholars of marketing, finance, and management; financial professionals; and consumer policy makers.
Article
We have entered a new world of retirement income security in America, with older individuals more exposed to market risk and more vulnerable to financial insecurity than prior generations. This reflects an evolution that has altered the historical vision of a financially secure retirement supported by Social Security, a defined-benefit pension plan, and individual savings. Today, 2 of these 3 retirement income sources-pensions and savings-are absent or of modest importance for many older Americans. Retirement income security now often requires earnings from continued work later in life, which exacerbates the economic vulnerability of certain segments of the population, including persons with disabilities, the oldest-old, single women, and individuals with intermittent work histories. Because of the unprecedented aging of our society, further changes to the retirement income landscape are inevitable, but policymakers do have options to help protect the financial stability of older Americans. We can begin by promoting savings at all (especially younger) ages and by removing barriers that discourage work later in life. For individuals already on the cusp of retirement, more needs to be done to educate the public about the value of delaying the receipt of Social Security benefits. Inaction now could mean a return to the days when old age and poverty were closely linked. The negative repercussions of this would extend well beyond traditional economic measures, as physical and mental health outcomes are closely tied to financial security. (PsycINFO Database Record
Article
The reputation of the financial industry could hardly be worse than it is today in the painful aftermath of the 2008 financial crisis. New York Times best-selling economist Robert Shiller is no apologist for the sins of finance--he is probably the only person to have predicted both the stock market bubble of 2000 and the real estate bubble that led up to the subprime mortgage meltdown. But in this important and timely book, Shiller argues that, rather than condemning finance, we need to reclaim it for the common good. He makes a powerful case for recognizing that finance, far from being a parasite on society, is one of the most powerful tools we have for solving our common problems and increasing the general well-being. We need more financial innovation--not less--and finance should play a larger role in helping society achieve its goals. Challenging the public and its leaders to rethink finance and its role in society, Shiller argues that finance should be defined not merely as the manipulation of money or the management of risk but as the stewardship of society's assets. He explains how people in financial careers--from CEO, investment manager, and banker to insurer, lawyer, and regulator--can and do manage, protect, and increase these assets. He describes how finance has historically contributed to the good of society through inventions such as insurance, mortgages, savings accounts, and pensions, and argues that we need to envision new ways to rechannel financial creativity to benefit society as a whole. Ultimately, Shiller shows how society can once again harness the power of finance for the greater good
Article
When does the general public lose trust in banks? We provide empirical evidence using responses by Dutch survey participants to eight hypothetical scenarios. We find that members of the general public care strongly about executive compensation. Negative media reports, falling stock prices, and opaque product information also affect trust in banks. Experiencing a bank bailout leads to less concern about government intervention, while experience of a bank failure leads to greater concern on bonuses.
Article
Using eight annual surveys from the Netherlands between 2006 and 2013, we examine whether financial crisis experiences affect trust in banks, trust in the banking supervisor, and generalized trust. Adverse experiences during the financial crisis do not only directly lower trust in banks, but also have a negative effect on generalized trust. Customers of a bank that ran into problems have less trust in banks than respondents without this experience. Our results also indicate that respondents who were customer of a bank that failed have a significantly stronger decline of generalized trust than respondents without this experience. Personal financial crisis experiences do not have a significant effect on trust in the banking supervisor.