We know wake-up packs don’t work, so why do providers still send them?
Achieving meaningful, positive change in pensions can be a tortuous slog. Take the cold-calling ban – a seemingly simple measure which took three years for the government to eventually implement.
Even this falls short of the full promised scams clampdown, with legislation designed to make it easier for schemes to block suspect transfers and harder for fraudsters to set up schemes in the first place stuck in the ever-lengthening queue for parliamentary time.
The campaign for a “pensions passport” is another that springs to mind. Back in 2009, when writing for a pensions trade magazine, I spoke to Hargreaves’ Tom McPhail and other members of the Pension Income Choice Association about the merits of providing a one-page document to make it easier for people to shop around the retirement income market.
This idea – another which I thought was a bit of a no-brainer – has just been adopted by the FCA through its Retirement Outcomes Review, 10 years after it was first proposed. This single-page summary document will be sent at age 50 as a prompt to savers, then included in wake-up packs sent every five years from age 55 onwards.
The regulator has also, encouragingly, accepted that providing consumers with lots of information might not lead to better retirement outcomes.
It says: “We are aware of the risk of ‘information overload’ for consumers making complex choices about their pensions. We also know that many consumers do not make use of the information available.”
However, there is no escaping the fact that, for the moment at least, the FCA is layering more requirements on providers and failing to deal directly with the information overload that risks locking savers into a state of inertia just when they should be engaging.
Reviewing the evidence
So, what could a better retirement communications framework look like? In search of an answer, I scoured the web for applicable research which could point us in the right direction.
Tellingly, there is very little – but what evidence there is suggests less documentation leads to better outcomes. Perhaps the most instructive was a piece of work carried out by the Behavioural Insights Team, a spin-off company from the UK government’s Cabinet Office, in 2017.
The BIT was commissioned to carry out research into the impact displaying information in different ways had on take-up of Pension Wise guidance.
To do this, three trials were set up with three different providers (Royal London, Standard Life and LV=). Each trial used behavioural interventions to nudge members towards the Pension Wise website.
The first trial (Royal London) placed the standard Pension Wise signpost letter at the front of the wake-up pack (instead of somewhere in the middle). The pack was also personalised.
The second trial (Standard Life) used orange paper for the Pension Wise letter so that it stood out among other documents in the wake-up pack.
The third trial (LV=) replaced the standard wake-up pack (which ranges in size from 50-100 pages) with a single A4 sheet of paper containing all the essential information a customer needs to shop around.
Success in the trials was measured based on whether the intervention resulted in more people clicking on the link displayed compared to a control group.
The impact of simplification
The first and second trials had no significant positive impact on consumer behaviour (in fact, the first trial saw a drop in the number of people who visited the website).
The third trial, however, had a large positive impact, with 11 per cent of people accessing the website when presented with the one-page document versus 1 per cent in the control group (which was given the traditional wake-up pack).
The third trial also included a questionnaire with 111 customers. While this is a smaller sample size than ideal, there were some notable findings from those who received the one-page document. They were:
- Significantly more likely (13.1 percentage points) to find knowing who to speak to about their decision easy;
- Significantly more likely (21.1 percentage points) to call around other pension providers;
- Significantly more likely (25.2 percentage points) to visit a price comparison website;
- Significantly more likely (26.3 percentage points) to start with Pension Wise website/guidance;
- More likely (8.1 percentage points) to do something else as the next step in their retirement journey;
- Significantly more likely (24.1 percentage points) to say the information they were sent prompted them into thinking about/taking action.
While the findings of this single study might not warrant a fundamental overhaul of retirement communications, the central conclusion – that less information leads to improved levels of engagement – cannot be ignored.
At the very least, we need to test whether interventions entirely different to those that currently exist could do a better job of improving knowledge and understanding.
Modern app-based banking companies are showing what is possible in creating genuine interest in banking and personal finance, particularly among younger people.
Surely now is the time for the FCA to rethink wake-up packs and think radically about retirement communications in general?
Tom Selby is senior analyst at AJ Bell