The Financial Conduct Authority has been told a general message, rather than “information overload” had a significant impact on getting pension savers to shop around for an annuity.
The FCA commissioned Oxera and the Nuffield Centre for Experimental Social Sciences (CESS) to conduct an experiment looking at the information savers get to shop around for a better deal alongside an annuity quote from their current pension provider.
A sample of 1,996 savers at or nearing retirement age (aged 55 to 65) were randomly divided into six groups and given a range of information, or none, about shopping around for an annuity.
The research revealed giving people too much information about what returns they could expect in retirement, rather than encouraging them to search for the best deal, made them less likely to shop around.
Following the reseach the regulator plans to consult on changes to the rules requiring providers to highlight the benefit of shopping around for an annuity.
One group was not presented with information on the gains from shopping around, and therefore acted as a ‘control’ against which the behaviour of the other groups could be compared.
One group was told ‘80 per cent of people who fail to switch from their pension provider lose out by not doing so.’ This text was accompanied by a visual representation of the 80 per cent figure.
Another group received a personalised quote comparison - the participants were provided with the highest quote they could obtain by shopping around. The difference between that quote and the pension provider quote was highlighted.
The text information was accompanied by a bar chart comparison of the two quotes.
Another group received a personalised quote comparison with lifetime gains - the same information was provided as in the ‘personalised quote comparison’, but also with an estimate of the forgone gains from not shopping around over a typical person’s lifetime.
Another group were given a non-personalised quote comparison - the participants were provided with an estimate of how much they could obtain by shopping around. However, the information emphasised that the quote provided was based on an estimate and that the participants might obtain a higher or lower quote were they to shop around.
The last group had a non-personalised quote comparison with lifetime gains - the same information was provided as in the ‘non-personalised quote comparison’, but also with an estimate of the forgone gains from not shopping around over a typical person’s lifetime.
In a 109-page report on the findings of the study, Oxera and the Nuffield Centre for Experimental Social Sciences stated all the different treatments have a significant impact on shopping around.
But the treatment effects (i.e. the difference between the treatment and the control) range from around eight percentage points for the non-personalised lifetime to 27 percentage points for the personalised annual.
The report also revealed including information about lifetime gains in the personalised text did not improve shopping around.