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Loss aversion - pension hike may cause some to leave workplace pension scheme

Geoff Riley

17th February 2019

Behavioural economics meets financial economics in this news article from the BBC.

Over 10 million people have auto enrolled into pension contributions since 2012 when employers were required to offer a pension scheme to their employees.

But an increase in monthly pension contributions from 3% to 5% is due to arrive in April 2019 which is likely to hit the disposable incomes of those affected.

Richard Thaler made the case that people are reluctant to enter into pension programmes if they fear the loss of income in the short run.

The softening blow from an increase in the income tax allowance and a modest rise in real wages may not be enough to prevent some people from dropping out of their workplace pension scheme.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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