One Year Later: Behavioral Design in the Mexican Retirement System

Nov 2, 2016 | By Marcela Cheng & Andrew Fertig in Blog

For millions of people around the world, the consequences of inadequate retirement savings are devastating. The problem is widespread even in countries with formal systems of mandatory contributions to individual retirement accounts. In Mexico, these mandatory contributions amount to less than 40% of a worker’s salary during retirement, and few people make the additional (voluntary) contributions that would keep them out of poverty after retirement.

Saving for retirement simply isn’t on most people’s radar. Less than half of one percent of people with active retirement accounts in Mexico make voluntary contributions. Additionally, more than half of the labor force works outside the formal sector, making no mandatory contributions and effectively saving zero for their retirement.

At ideas42, we identified this as an area where behavioral science could have tremendous impact. A year ago, we released our initial insights report on retirement savings in Mexico. Since then, our work has progressed tremendously.

In the report, we identified key behavioral barriers that keep people from following through on their intention to save for retirement. One challenge people face is a future that seems abstract and quite distant, making it hard to plan for. Another is the negative feeling incited by retirement savings, which is perceived as “giving up” money in the present, even if it’s beneficial in the long run.

In the last few months, thanks to support from the MetLife Foundation, we launched several interventions that are designed to address the behavioral bottlenecks we identified in Mexico.

We redesigned the quarterly statement sent to the 53 million account holders in the Mexican public retirement system to include an easy-to-understand savings “thermometer,” along with clear action steps and a checklist to help people get on track. We conducted a randomized controlled trial to test the impact of the new statement on contributions. We expect our results to be applicable across the retirement planning industry.

After the redesigned account statements were sent out, we launched a text messaging campaign to prompt account holders to explore their statements. The series of text messages put retirement savings in familiar context (for example, connecting its benefits to family well-being) and provided tips about goal-setting and the power of saving small amounts regularly to begin positive savings habits. Importantly, each message also included a simple list of next steps for making a voluntary contribution.

Our work applying behavioral design to the nationwide retirement system by using simple but effective changes is a big step forward. Because saving for retirement is a “new” behavior in Mexico, these first steps—making progress salient to account holders, providing easy, actionable steps, and sending reminders—were critical to laying the groundwork for our upcoming efforts to continue making saving for retirement a part of life for millions of people.

Launching in the beginning of 2017, our new interventions will also have behaviorally-informed timing on their side. The “fresh start” effect, or the tendency take on our goals around noticeable milestones, like birthdays and the New Year, is a great example of how understanding context can play a crucial role in designing effective solutions. Stay tuned as we seek to better understand savings behavior and design solutions to help people follow through on their savings resolutions in Mexico and elsewhere in Latin America.