Increasing the take-up of the housing allowance among Swedish pensioners: a field experiment

A common feature of various means-tested social benefit programs is that the targeted individuals fail to take up their benefits (Currie 2006). Empirical estimates typically indicate low take-up (see, e.g., Blank and Ruggles 1996; U.S. Department of Health & Human Services 2015; Department for Work and Pensions 2008; Riphahn 2001; Gustafsson 2002).¹ Incomplete take-up reduces the effectiveness of social programs and limits the ability of the government to reduce poverty. It is therefore of central policy importance to understand how take-up can be affected. The various factors that might explain why individuals do not apply for the benefits they are entitled to have generally been categorized into lack of information, information costs, transaction costs, stigma and complexity/non-transparency (Currie 2006; Remler et al. 2001). However, little is known about the relative importance of these factors in different parts of the population.

Using a randomized field experiment in the Swedish pension system, we investigate whether information letters with different framing affect the take-up rate of housing allowance for pensioners. Specifically, from a sample of about 95,000 single pensioners (10% of all single individuals in the age group \(65+\) in Sweden) with sufficiently low income to potentially qualify for the housing allowance, about 10,000 individuals were randomly selected to receive any of four different information letters.² One of the letters contained basic information about the housing allowance, which was reproduced in the other three letters with a slight addition that relates to the hypothesis we wish to test. One of the framed letters addressed the role of eligibility myths and stigma while the remaining two letters aimed at clarifying the eligibility criteria. An application form was enclosed in all mailings. Therefore, the letters simultaneously lowered both information costs and transaction costs related to applying for the benefit. Individuals who received no information mailing make up the control group.

The housing allowance is a means-tested benefit for pensioners with low income and wealth that pays maximum SEK 5000 (SEK 1 \(\approx \) USD 0.11) per month with an average payment of SEK 2400. Previous studies indicate substantial under-utilization of this benefit and the foregone benefits are large. According to the Swedish National Audit Office, half of the non-claiming individuals are estimated to forego SEK 900 per month, an amount that individuals with a monthly pension income of SEK 10,000 typically could qualify for (Riksrevisionen 2013). While only 15% of the current pensioner population receive housing supplement, as many as 30–35% are likely to be eligible.

Our study is closely related to three previous studies in the empirical literature on benefit take-up. From a methodological perspective, our study is inspired by Bhargava and Manoli (2015) who conduct an extensive information intervention aiming to increase the take-up of the US EITC. We distinguish our project from Bhargava and Manoli (2015) by studying take-up among a group of non-working individuals in great economic need with low take-up, namely poor elderly. From a policy perspective, it is important to know whether the effectiveness of information letters varies across individual characteristics like work status and age. Furthermore, as noted by Korpi and Palme (1998), the pensioners are of particular interest since public transfers play a larger role in their income than they do for the working population. The second study is by Matikka and Paukkeri (2016) who analyze the effect on the take-up of the minimum guarantee for pensioners in Finland by sending information on eligibility and an application form to eligible individuals. Our study is similar to the Finnish study in the sense that they also focus on poor elderly. However, in contrast to Matikka and Paukkeri (2016) where the letter recipient status was based on pre-determined pension income status, we randomly assign individuals to different information letters. Furthermore, while Matikka and Paukkeri (2016) study the introduction of a new benefit, we study a benefit that has long been in place. As a result, we do not have to account for potential effects of media coverage and time on take-up.

Our study is also inspired by Guthmuller et al. (2014) who conduct a randomized information experiment to increase the take-up rate of a health-insurance voucher program for the poorest in France. An important distinction between our study and Guthmuller et al. (2014) is that they evaluate the effects of two treatments (varying the subsidy amount and invitations to information meetings) against a basic information letter. In our experiment, we have two control groups: one that received no letter and one that received a basic information letter. This allows us to evaluate both the effects of receiving any information at all as well as the specific contents of such a letter.

The results show that simple information letters had a significant effect on the application rate and subsequent take-up. The baseline application rate in the targeted control population was only 1.4%, while the corresponding rates in the different treatment groups were between 9.9 and 12.1%. The only letter that had a significantly different effect from the basic information letter was the letter that addressed common misconceptions about the benefit’s eligibility criteria. This group had the highest application rate of 12.1% compared to the basic letter of 9.9%. The effects are particularly large for old pensioners (above the age of 80). We also find that the economic impact of the treatment was substantial. Using an IV analysis, where application is instrumented by treatment, we estimate an income effect of approximately SEK 750. This means that the applicants, induced by the treatment (i.e., the compliers), increased their income by roughly 10%.

However, the information treatments also had negative effects in the form of substantially lower conditional acceptance rates. The applications in the control group were accepted in almost 3 out of 4 cases, while up to 50% of the applications in the treatment group were declined. These findings suggest that there is strong positive self-selection among the applicants in the treatment group and that the information letters pushed some individuals to apply even though they were not eligible. The lower conditional acceptance rate in the treatment group seems to be largely driven by wealth, which the Pensions Agency cannot observe prior to submission. However, all the other unobservables—occupational pension, cohabitation status and housing expenses—also seem to contribute to lower eligibility among the treated applicants.

Declined applications are costly both to the individuals in terms of false hope and the effort of applying, but also to taxpayers in general through the administrative costs of processing applications for ineligible applicants. The substantial decrease in conditional acceptance rates among the treated is somewhat surprising since all letters aimed at simplifying the pensioners’ own evaluations of eligibility. We can only speculate about the reasons for this decline in self-selection among the treated. One reason could be the well known fact that Swedes (and Scandinavians in general) report a very high level of trust toward public institutions [see, e.g., Rothstein and Uslaner (2005)]. It is possible that a high level of trust may misfire, so that an individual who is informed by an institution that she may be eligible simply disregards her own knowledge and presumes that the authorities know best. If this, arguably speculative, story is correct, public institutions with high levels of trust need to be extra careful when designing information campaigns aimed at increasing benefit take-up in situations with imprecise targeting. It could also be the case that the information treatments simply lowered the costs of submitting an application to the point where many applied even though they thought that they were not likely eligible.³

The results also indicate that far from all letter recipients applied (the non-application rate is close to 90%). Many probably refrained from applying because they knew that they were not eligible due to any of the aforementioned unobservables. Even though this group did not waste any effort on applying, the misdirected letters may have a cost in terms of bad publicity for the Pensions Agency. Of course, the high non-application rate also implies large direct costs of sending letters to non-eligible people. This adds to the necessity of more accurate assessment of the eligibility of individuals before scaling up these interventions to the broader population of (potentially eligible) non-claimants.

Our finding that information letters increase take-up is consistent with studies that examine the impact on benefit take-up of receiving an information letter compared to receiving no letter at all. Bhargava and Manoli (2015) find large effects on take-up from simple reminders about the EITC. Matikka and Paukkeri (2016) also find that the targeted information letters about a new guarantee pension system (introduced in 2011) significantly increased take-up and prompted pensioners to apply sooner.⁴ To our knowledge, the only related study with similar difficulties in reaching the eligible population is Guthmuller et al. (2014). While the submission rate in their experiment was slightly higher than in our case (16.7%), the conditional acceptance rate was very similar (55.2%).

Regarding the different explanations for why some individuals do not apply for the benefits they are entitled to, we conclude, based on the modest differences between the different letter framings, that the primary explanation for the low take-up rate among poor elderly is low awareness.⁵ An interesting exception, however, is that the conditional acceptance rate for the Rule of Thumb Letter was about 20% higher than that of the Base Letter. Demonstrating the eligibility criteria using simple examples might therefore be the most effective tool to get eligible individuals to apply. This is in line with the finding in Bhargava and Manoli (2015) that simplified information about the benefit had larger effects.

The remainder of the paper is organized as follows. Section 2 provides a background of the Swedish pension system and the housing allowance for pensioners. Section 3 describes the experimental setup, including the sample selection and the contents of the information letters. Section 4 reports the results from the experiment, and Sect. 5 concludes.

Sweden’s pension system has two main pillars: a universal public pension system and an occupational pension system for workers whose employer is tied to some occupational pension plan. The public pension is the most important source of pension income for most people. The relative importance of the public pension typically decreases with the income level of the individual because of a progressive feature of the public pension (Hagen 2017).⁶

The public pension system has in itself three tiers. The first two tiers are income-related and are referred to as the income pension and the premium pension.⁷ The third tier is called the minimum guarantee and is paid out to pensioners above 65 years of age who have low or no earnings-related pension. As shown in Fig. 3, the reduction is taken in two steps: For low incomes, the minimum guarantee is decreased by the full amount of the earnings-related pension; for higher incomes, the guaranteed pension is decreased by only 48%. Thus, a single pensioner with a monthly earnings-related pension of SEK 11,343 or more received no guaranteed pension in 2016, the year of the experiment.

Another component of basic security in the Swedish pension system is called the housing allowance. The housing allowance is means-tested against income (pension, labor and capital income) and wealth. It is also a function of housing expenditures. If the individual is married or has a cohabiting partner, eligibility depends on the income and wealth situation of the household. The maximum and average benefit level per month is SEK 5000 and SEK 2400, respectively.

Take-up is more common among women than men (18 and 7% of the pensioner population, respectively). This reflects the fact that women have lower pensions on average. Around 80% of those who are entitled to the minimum guarantee are women.

Estimates of the share of non-applicants in the population of potentially eligible pensioners range between 25 and 35% (Riksrevisionen 2013; Pensionsmyndigheten 2019). A survey sent out by Statistics Sweden to potentially eligible non-applicants in 2007 offers some explanations for this low take-up (Försäkringskassan 2007). It showed that around half of the non-applicants did not know about the housing allowance. This suggests that an information letter, regardless of framing, is likely to have a large impact on the submission rate. The survey also showed that one-third of those who knew about the allowance falsely believed that they were automatically disqualified because they were house owners (as opposed to living in an apartment). A significant share also believed they were disqualified because they had too high income and/or wealth. Thus, the framing of an information letter, particularly with respect to the eligibility criteria, may affect submission (and acceptance) rates. The low take-up could also be due to social stigma associated with receiving means-tested benefits, which obviously is difficult to elicit from surveys.

The Pensions Agency is responsible for administrating the housing allowance. This means that they collect the incoming applications and decide whether the allowance should be granted or not. The application form can either be submitted by mail or online and a decision is typically made within 1–2 months (the average waiting time in the experiment is 34 days).

There are two application forms: one for single households and one for two-person households. Applicants are required to provide information on things that affect eligibility (i.e., household members, type of housing, housing costs, assets, debts and income). Before making a decision, the Pensions Agency verifies the reported information by requesting information about the applicant(s) from the relevant banks, mortgage lenders and the Tax Agency. The information is always double-checked against the banks if the reported wealth exceeds SEK 100,000. If reported wealth is below this level, the responsible desk officer at the Pensions Agency has the mandate to make a decision without verifying the information. Recipients should notify the Pensions Agency of any changes in the financial, living or family circumstances that might affect the housing allowance.

Figure 2a shows the share of pensioners who submitted an application by treatment. There is a clear difference between the control group, on the one hand, and the different treatment groups, on the other hand. While only about 1% in the control group submitted an application during the experiment period, more than 10% of those who received a letter applied. The submission rate is highest among pensioners receiving the Myths Letter, but otherwise very similar.

Figure 2b shows the share of accepted applications conditional on submission, also by treatment. A striking result is that the conditional acceptance rate is much lower in all treatment groups compared to the control group. Thus, the substantial increase in application rate, induced by the treatments, has clearly come at a cost since the letters seem to have caused many ineligible pensioners to apply. We will get back to this issue in Sect. 4.3, in which we analyze the probable causes for ineligibility.

This paper reports the results from a randomized field experiment investigating whether receiving an information letter affects the submission and acceptance rate of a means-tested benefit in Sweden, the housing allowance for pensioners. We also investigate whether the framing of the information letter affects take-up. The experiment was carried out in collaboration with the Swedish Pensions Agency

The sample for the field experiment consisted of 96,481 single, low-income pensioners and was drawn in May 2016, three months prior to the mailings. Four different letters were sent out to 10,000 subjects (2500 subjects each), and those who received no letter make up the control group. The information in the most simple letter, the Base Letter, was reproduced in the other three letters with a slight addition about common misconceptions about the benefit (the Myths Letter), three simple examples of the possible level of allowance for different combinations of income and wealth (the Rule of Thumb letter), and nine potential combinations of income and wealth and the resulting housing allowance (the Table Letter). Applications were collected up until December 31, 2016.

The results from the experiment are mixed. On the positive side, the results show that simple information letters had a significant effect on the application rate and subsequent take-up. The baseline application rate in the targeted control population was only 1.4%, while the corresponding rates in the different treatment groups were between 9.9 and 12.1%. The only framed letter that had a significantly different effect from the Base Letter on the probability of submission was the Myths Letter. The unconditional acceptance rates also increased substantially, from around 1% in the control group to about 5% in the treatment groups. The economic consequences of the treatment were substantial. Our analysis shows that those individuals who were induced by the treatment to apply, increased their monthly income by around 10% on average.

However, the information treatments also had negative effects in the form of substantially lower conditional acceptance rates. The applications in the control group were accepted in almost 3 out of 4 cases, while up to 50% of the applications in the treatment group were declined. The reasons for decline seem to be that the applicants in the treatment group had higher occupational pension, higher wealth, lower housing expenditures and were more often cohabiting compared to the applicants in the control group. Even though the letters were supposed to give simple information about the eligibility criteria, they thus seem to have misled some applicants to believe that they were eligible even though they were not. Another interpretation is that the treatments simply lowered the cost of applying to such a low level that many applicants applied even though they were aware that the chance for acceptance was low.

It is reasonable to assume that a policy maker would like to increase take-up among the eligible population but at the same time also reduce the share of declined applications. Declined applications are costly both to the individuals in terms of false hope and the effort of applying, but also to taxpayers in general through the administrative costs of processing applications for ineligible applicants. There are also indirect costs associated with the non-application of eligible individuals because of uncertainty about their eligibility. It is very hard to put a price tag on any of these costs and benefits.

We can thus conclude that, from the perspective of the policy maker, these information interventions could be an effective tool to increase the take-up rate of the housing allowance. Scaling up these interventions to the broader population of (eligible) non-claimants can be done at relatively low cost, e.g., by including the information in the personalized Orange Letter that is sent out yearly by the Pensions Agency to all individuals who are part of the pension system (savers as well as pensioners). However, if this is to be done, it is important that the eligibility of individuals can be assessed properly.

One way of achieving better targeting would be to allow the Pensions Agency to gather more data from other public agencies and banks in order to make a more accurate a priori assessment of the eligibility status. Another option could be to send out this information to pensioners who experience an important life change which typically increases eligibility, such as the loss of a husband or wife. If enhanced precision is not feasible and one still wants to make use of information interventions, then our results suggest that demonstrating the eligibility criteria using simple examples may be the most effective tool to get eligible individuals to apply.