Pressing engagement: what behavioural interventions work in long-term savings?

Pensions policy veterans and newcomers alike will be all too familiar with two big questions posed at hundreds of events over many years: how do we get people to save more, and how do we get people to make informed retirement decisions?

The answer is often framed as a battle between engagement and defaults, but this is a false dichotomy. The Pensions Policy Institute’s report on “Consumer engagement: the role of policy through the lifecourse”, launched at the ABI this week explores the engagement challenge in more detail.

It looks at behavioural interventions alongside other policy levers – compulsion, defaults, safety nets, consumer protection, and freedoms. It finds that what works best will depend on a saver’s life stage, and their personal characteristics.

My three big take-outs of the report are as follows:

• Make it personal

Younger people engage differently to older people. Men engage differently to women. And more financially capable people engage differently to less financially capable people.

This leads us to the same conclusion as our paper on Motivating People to Save: that as well as being simple, consistent and visual, communication needs to be personalised.

While digital communications make this much more doable, it is still not easy to do. DWP will need to update the rules around annual statements to make them simpler and more personalised – and not necessarily annual any more. 

And personalisation rubs up against the familiar problem of what constitutes advice, and what constitutes guidance. We have to see more action to make sure that firms are confident in being able to offer guidance to customers in a dynamic and engaging way.,

• Engagement doesn’t always work

Engage people too early and they might opt out of pension saving. But later engagement can cause problems too.

The PPI found that people who receive communications at their selected retirement date feel that they are required to make a decision and are not aware that they can leave their savings untouched. If they do access it, the most common response is to take it as a lump sum. That doesn’t feel like a good outcome.

The FCA Retirement Outcomes Review is taking a close look at the rules about retirement communications – commonly known as wake-up packs (though the phrase “wake-up packs” is jargon we’d rather avoid). The best approach may be just to put them to sleep and start engaging much earlier.

• Teachable moments matter

People tend to engage with financial services when they need to – so we need “just in time” engagement and interventions. But for pensions, when customers really need to engage, it might already be too late.

Further evidence is needed on what works. What are the teachable moments for understanding your retirement options, when retirement is so fluid? And what are the teachable moments during retirement?

We welcome the idea of a mid-life MOT recommended by John Cridland, and a mid-retirement MOT, but these need to be tested in practice.

To help people to engage with the right information at the right time, we have to get to a position where guidance and advice are the norm. The new single financial guidance body has a central role in this and it will need a concerted, collaborative effort from industry, government and regulators to get there.