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ABI sets out ‘nudge’ tactics for pensions guidance

The Government’s guidance service wil have to tackle savers underestimating life expectancy and should introduce “cooling off” periods if savers try to take too much of their pension pot at once, according to the Association of British Insurers.

A report published today, carried out by consultancy ideas42 on behalf of the ABI, applies behavioural economics to the Government’s freedom and choice reforms.

It says guidance sessions need to tackle issues such as people’s tendency to underestimate how long they will live, overconfidence and misunderstanding of risks. It adds the “representativeness heuristic”, such as where one bad annuity tars all annuities with the same brush, also needs to be addressed.

The report also says the guidance service, delivered under the Pension Wise brand through The Pensions Advisory Service, Citizens Advice and a Government website, needs to help people overcome their fear of financial information and encourage people to connect with their “future self”.

Other recommendations include introducing “cooling off periods” if savers try to take a certain proportion of their pot at once; more distinct categories to help savers compare different products, and a greater focus on following-up provider communications.

ABI director general Huw Evans says: “This is a must read for everyone committed to making these reforms a success and improving retirement outcomes for savers.”

Ideas42 managing director Katie Martin says: ”We know from our own lives that we don’t always make decisions that are in our own long-term best interests, and there’s no reason to believe that defined contribution pension holders will be any different.

“In fact, given the vast array of psychological, cognitive and emotional barriers inherent in making decisions about retirement, it is highly likely that many of them will make choices they will later come to regret.”

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Global benefits predictions for 2015 from Jelf International

According to Doug Rice, managing director of international services, in 2015, managing their international duty of care will become an increasing focus for UK-based overseas organisations in both managing their short- and longer-term challenges. As a result, strong independent advice and innovative technological solutions will become more important than ever in managing their global benefits.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. If people can be trusted with their pensions why do we need all these protections in place?

    A tongue in cheek comment of course.

  2. It is good to see people finally waking up to the fact that decisions at retirement compromise of an analytical part an emotional part.

    I have written about nudge before – http://www.moneymarketing.co.uk/nudge-nudge/1045580.article – so I am in full agreement with this paper

  3. Greater studies into, and uptake of, behavioral economics, nudge and framing can only help. Supermarkets have done it for years, so why can’t financial services?

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