Giving pension savers the freedom to choose their own investments is beneficial, but including too much choice in a national pension system is counterproductive, according to a new report assessing different retirement frameworks.

In the white paper produced by US financial services firm Morningstar – An Evaluation of Retirement Systems Around the World – analysts reach a number of conclusions, saying some countries are better than others at limiting choice; that auto-enrolment programmes are effective and that efforts to engage people regarding pensions need to increase.

The report, which Morningstar says is its first international look at retirement frameworks, homes in on the features of workplace retirement schemes in Australia, Canada, Hong Kong, New Zealand, Singapore, Sweden, the UK and the US. The firm says frameworks in these countries are often considered among the best-in-class in their regions.

Andy Pettit, director of policy research at Morningstar, said: “It is evident that, globally, the best-placed workplace schemes are government-mandated contributions; savings incentives such as tax breaks or government contributions and employer-contribution-matching programmes; and transparent oversight or benchmarking of scheme funds’ performance and costs.”

Regarding differences in the range of investment options given in frameworks, the firm said choice was good – but too much choice was counterproductive.

“Investment choice is a particularly interesting area of policy difference, ranging from a controlled choice of government or regulatory approved funds – as in Singapore, Hong Kong, and the new Swedish Fund Selection Agency – through to choices from across literally thousands of funds – as in Australia and the UK,” according to the report’s authors, Pettit and Lia Mitchell, senior analyst, policy research at the US firm.

Other countries, such as New Zealand, operated a middle ground, they said, with a set of approved products, but where choice was not confined to those.

“Arguably, scheme trustees in some jurisdictions, whose mandate includes acting in the best interests of scheme members, should be filtering investment choices to best-in-class options and reducing the chances of members directing their savings to poorly performing funds,” said Pettit and Mitchell.

Reducing the number of funds to choose from would also push up contributions to the remaining funds, they said, giving more bargaining power for fee reductions on those funds.

They said there was evidence, notably from Sweden, that aggressively promoting the availability of investment choices and potential benefits could encourage people to make more active decisions.

“The Premium Pension Authority, or PPM, was introduced in 2000 with heavy government and provider advertising that saw a high proportion of members self-select investments but which declined over time as promotional activity reduced,” the researchers said.

The report also concluded that auto-enrolment programmes were effective.

“They get more people saving earlier, and countries have scope to expand them, for example, by bringing more people into the program and escalating contribution rates,” Morningstar said.

It also said efforts to engage people regarding their retirement savings needed to be stepped up.

“We find increasing examples of proactively engaging members as retirement approaches but a dearth of initiatives to engage younger people in retirement saving,” Morningstar said.

Read the digital edition of IPE’s latest magazine