Pension savers approaching retirement are set to receive simpler, clearer communications in the future, which should help them to make better decisions about how and when to draw on their retirement savings. Comment from Tom McPhail, Head of Policy – Hargreaves Lansdown.
The news follows lengthy trials by the Behavioural Insights Team on behalf of the Pension Wise service. Work was conducted in conjunction with LV=, using actual customers approaching retirement. This has allowed the results to be tracked against control groups using the traditional wake-up packs, thereby providing unambiguous evidence of the benefit of clear, simple communication. Those receiving the Pension Passport were 10 times more likely to make use of the free Pension Wise guidance service.
Following the publication of this research, it is now expected the FCA and DWP will now push the pensions industry towards simpler communications as soon as possible. Tom McPhail, head of policy: “This evidence confirms what a lot of businesses probably knew already; customers are more likely to act on simple, clear concise information, whilst lengthy complicated documents tend to cause customers to disengage. 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. All investors who are approaching the age at which they might draw on their pension savings should take the time to explore their options. If they leave it until the last minute they are less likely to make a good decision. Most people need help too, so take the time to talk to your pension provider, to Pension Wise and if necessary make use of a financial adviser.”
A group of pension companies, including LV=, Just, Hargreaves Lansdown and Retirement Advantage formed the lobby group the Pensions Income Choice Association in 2009 which first proposed the concept of a Pension Passport. It was this work which ultimately led to the behavioural trial of shortened wake-up packs.