Saving for a Better Retirement: How Risk Attitudes Affect Choice of Retirement Scheme

Over 3 million people in Hong Kong and 21 million people in the UK are saving for retirement under the mandatory provident fund and individual savings account schemes, respectively. Yet, we know little about how individual preferences, such as risk attitudes (risk-seeking and risk-averse) that are known to impact highly consequential decisions in a variety of real-world contexts, impact retirement investment choices. In two experimental studies (Study 1-Hong Kong sample and Study 2-United Kingdom sample), we show that personal risk attitudes were a strong predictor of the profile of retirement investment portfolios. Specially, risk-averse people allocated more of their savings to low-risk funds than risk-seeking people. The pattern of findings is consistent in both Hong Kong mandatory and the UK voluntary retirement investment schemes. These findings are considered in light of policy decisions made in Hong Kong retirement and UK pension schemes.