We are the voice of insurance and long-term savings | Contact us

New research identifies behavioural barriers to engaging people in retirement planning

ideas 42 coverNew research, commissioned by the Association of British Insurers, identifies the key behavioural barriers the pension reforms will have to seek to overcome if they are to succeed.

The report by ideas42, highlights the need to take into account the realities of the way people think and act when trying to engage them in crucial decisions about their retirement. It sets out the behavioural elements of retirement income planning and examines a number of important issues including the lack of consumer engagement, shopping around and switching behaviour, and why choosing the right retirement path can prove difficult for some savers.

The launch of this report comes less than six weeks before the new rules for holders of Defined Contribution (DC) pension schemes are due to come into effect. ideas42’s analysis finds that the new freedoms are likely to increase the risk that savers will make decisions that are not in their own best long-term interests, and that the Government’s efforts to provide free, impartial advice may not be enough to overcome this.

Drawing on insights from the science of decision making and behaviour, the report sets out possible ways for industry, government, and regulators to help savers make better decisions. These recommendations are designed to address common psychological tendencies such as:

  • Avoiding tasks that are difficult or unpleasant, especially when they provoke fear
  • Unknowingly relying on faulty heuristics to inform our choices
  • Becoming overwhelmed when presented with too many options or large amounts of information, leading to bad decisions or no decisions at allLetting small hassles get in the way of reaping large benefit
  • Showing time inconsistent preferences, resulting in seemingly short-term decisions

Read the report: Freedom and Choice in Pensions: A behavioural perspective (pdf 236kB)

Huw Evans, Director General, ABI comments:

"This report provides new in-depth analysis of how customers are likely to behave when they approach the new pension freedoms that begin this April. This is a must read for everyone committed to making these reforms a success and improving retirement outcomes for savers."

Katie Martin, Managing Director, ideas42, comments:

"We know from our own lives that we don’t always make decisions that are in our own long-term best interests, and there’s no reason to believe that DC pension holders will be any different. In fact, given the vast array of psychological, cognitive and emotional barriers inherent in making decisions about retirement, it is highly likely that many of them will make choices they will later come to regret.

"The goal of this report is to contribute to the debate about how we can prevent as many of these bad decisions as possible."

The reports publication comes ahead of the ABI Retirement Conference, taking place on Wednesday 25 February 2015.

Last updated 01/07/2016