Nudge Unit pension comms probe backs Passport

Trials by the Government’s nudge unit have shown the power of behavioural insights to increase take-up of Pension Wise, with the adoption of a Pension Passport-style simplified information sheet most likely to increase engagement.

Trials were carried out on customers of LV=, Royal London and Standard Life by the Behavioural Insights Team.

The research found that a single A4 page wake-up pack will increase take-up of Pension Wise by 10 per cent, compared to standard wake-up documentation running into tens of pages.

In controlled tests, LV=’s standard wakeup pack was replaced with one side of A4 that included all the essential information that a customer needs to access open market options and a clear call to action around next steps. The Behavioural Insights Team said this document, labelled a Pension Passport, led to a statistically-significant increase of 9.8 percentage points in the likelihood of visiting the Pension Wise website, and a statistically-significant increase of 3.5 percentage points in the likelihood of calling the Pension Wise booking line.

The LV= intervention targeted the impact of the cognitive concept of information overload and particularly, how it relates to so-called status quo bias, the tendency to stick with the current or default option even if alternatives are superior. Status quo bias is often present when choosing complex financial products such as pensions or mortgages, where for most people, the differences in the various types of available annuities or mortgages are difficult to understand and compare with each other. As long as the status quo is perceived to be a moderately suitable option, customers are likely do nothing and as a default take no action, says the Behavioural Insights Team.

An experiment on a controlled sample of Standard Life customers – where the letter signposting them to the Pension Wise site was printed on orange paper, found a 0.2 per cent increase in the likelihood of them visiting the site, which the Behavioural Insights Team described as not statistically significant.

The Behavioural Insights Team found less than 1.5 per cent of the 15,753 customers in the Standard Life trial visiting the Pension Wise website via traceable URLs created specifically for the research. It says that auto-fill in browsers and search engine enquiries make it difficult to calculate exactly who visited the website as a result of the interventions. But it did conclude that using different coloured paper for the Pension Wise signposting letter increased the number of customers visiting the PW website for wakeup packs delivered to more passive consumers.

But an experiment of a sample of Royal London customers found no evidence that putting a letter about Pension Wise at the front of the pack rather than in the middle made any difference to uptake.

The report concludes that current wakeup packs provide so much information to customers that it makes it difficult for them to digest all of it and feel empowered to make a decision with their pension pots. The size of the packs could even lead to total disengagement with the material, said the Behavioural Insights Team, which wants to push the extension of the Pension Passport, which has been developed by the Pensions Income Choice Association, further across the industry.

The report also concluded that response rates were generally low, and recommends that Pension Wise continues with its additional communication channels as ways of spreading information around their guidance guarantee, beyond information shared just via wakeup packs

Hargreaves Lansdown head of policy Tom McPhail says: “Given this evidence we hope all companies will now adopt a simple, Pension Passport type approach to help their customers make good decisions with their retirement savings. Where necessary, the FCA and the DWP should intervene to ensure all pension providers adopt this approach.

“The FCA’s Retirement Outcomes Review is looking at what needs to change at the point of retirement. However given the new pension freedoms, the whole process of how savers decide when and how they draw on their retirement savings needs to be re-thought. This needs to be treated as just a stage of a customer journey, which starts engaging them with their pension as soon as possible after they first join. Policymakers across government and regulation have struggled to get to grips with the new post-paternalism retirement savings paradigm.

“Most people know how much is in their bank current account and how much their property might be worth; hardly anyone has even a vague idea how much their pensions are worth until they almost ready to retire. This has to change.”