Nudging is not enough on pensions, says think tank

Nudging is not enough on pensions, says think tank

Behavioural nudges can help people to achieve better outcomes from long-term saving though alone they are not sufficient to help everyone to realise their full potential benefit.

This is one of the key findings of the Pensions Policy Institute (PPI) paper 'Consumer engagement: the role of policy through the life course', the final in a series of three reports on consumer engagement with pensions.

The report segments people by life stage and current level of engagement, and sets out how behavioural interventions and other policy levers might be most helpful in achieving good pension outcomes.

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It explores pension outcomes within the framework of six policy levers:

Compulsion - options that people must take whether they wish to make an active choice or not. 

Defaults - an option given to people who do not wish to or are unable to make an active choice. 

Safety nets - policy mechanisms designed to help those in financial hardship.

Consumer protection - legal and regulatory measures which protect people from fraud or poor governance (including high charges).

Behavioural interventions – policies aimed at encouraging people to make decisions (or not make decisions) which result in better financial outcomes. 

Freedoms - policies which extend freedom to individuals, such as the removal of tax regulations which previously prevented people from taking all of their defined contribution savings in cash.

According to the think tank, many poor outcomes around pensions arise from socio-economic inequalities.

Tackling the barriers outlined in this report such as low levels of financial capability, will require a joint effort from government, industry, employers, education providers and consumer support organisations, its authors said.

Daniela Silcock, head of policy research at the PPI, said: “The most appropriate interventions vary throughout the life course.

"Those at younger ages benefit more from interventions aimed at increasing capability and are happier to access guidance digitally, while those at older ages might need more detailed information and interventions which accommodate declining financial capability and are likely to prefer face-to-face or telephone communications.

“People experiencing significant barriers to engagement or with low financial capability will be more dependent on other policy levers such as means tested benefits and saving defaults to avoid negative financial outcomes.” 

Commenting on the report, Darren Philp, director of policy and market engagement at workplace pension provider The People’s Pension, said there is an opportunity for the pensions industry to re-evaluate how it engages people in saving for their retirement.

"This might take the form of using technology to drive forward initiatives such as the pensions dashboard.

"Giving people information about their pensions is only one part of the solution, we also need to make sure they have access to the right products, tools and support at the right time.

"While it highlights that engagement needs to be tailored differently for different groups, the reality is that for most people, defaults will still be the most appropriate solution.”