Realistic horses for courses

The answer for a pension provider is pretty straight forward. Engage those members that you can, when you can. Robo-advice makes this potentially much more feasible at a cost effective price. Our members can access LV= pension advice at the low cost of £49 in order to get retirement advice. We are also one of the strong advocates for the pension dashboard. It should be a tool with which people can measure what they have saved and how much they need to save to realise their ambitions for income in retirement. The more financially literate the pension provider’s membership, the more successful these tools are likely to be in helping to deliver good outcomes.

However, any good provider ought to know its customers. If we know that a good proportion of actual existing customers are not going to successfully engage then it would not be sensible to base a relationship for all solely on the deployment of information tools.

And we do know that many will not currently engage because we, along with State Street, have sponsored two years of qualitative research, following a group of 80 DC retirees. They have been plied with information in order to see how well they cope with an at retirement system based on requiring engagement.

What the Ignition House findings tell us is that behavioural biases are driving many DC pensioners to make sub-optimal decisions and that the availability of information does not ameliorate the difficulties for most.

The TISA event frames the question as “is [it] better to pursue the goal of getting all pension savers to engage with their accounts from an early age, or whether it is better to let inertia take its course, running schemes with strong independent governance, and then to gently wake members up as they approach retirement age”.

This question points to the current discontinuity between an inertia based saving phase and a requirement for engagement at retirement and poses the question when is the optimal point to engage people: is it just prior to retirement or should it begin when people are young?

However, as I think my comments above indicate, I think the best answer to that question requires a disaggregation of the term “pension savers”. If we do that then the answer for many people lies not in extending the engagement point for retirement decisions further back into the saving phase but instead points to extending the default phase forward through retirement.

The need for a set of retirement defaults means that the government has to re-enter the market and set some standards. But we don’t see that as anti-market. One of the merits of defaults is that where market players can persuade people that there is a better offer than the default then they can encourage people to switch; and engagement may be a route to doing that for a segment of customers.

Andy Tarrant
Head of Policy and Government Relations, The People’s Pension