This new study which involved more than 5,000 UK pension savers, tested whether VfM metrics, similar to the Financial Conduct Authority’s (FCA) proposed industry-facing metrics, helped or hindered consumers when they were asked to compare different pension products.
The research shows simple metrics5 can help consumers better identify higher-value pension products when compared to a factsheet, the current status quo offered by pension providers.
The study consisted of an online randomised controlled trial where pension savers were randomly assigned to view one of four distinct VfM metric designs or a factsheet, which served as the control group. They were asked to shortlist three pensions from eight unbranded options and received a higher score for shortlisting better value pension options.
The research finds that VfM metrics significantly affect consumer decision-making, with different designs causing participants to focus on different aspects of pensions in their decision-making. The study highlights that there is a “sweet spot” in simplification: too much detail can overwhelm, while too little can reduce trust and worsen decision making. For example, consumers were better able to identify higher quality pensions when they were shown a 5-point RAG rating compared to a 3-point RAG rating.
People’s Pension has previously highlighted that the introduction of pensions dashboards will help consumers track their pensions, however, its research has shown how vulnerable people are in the decision-making process when transferring pensions, meaning the need for easy-to-understand metrics about the value of a product is vital.
The most recent findings follow previous research6 from People’s Pension and BIT, showing that cash incentives can result in consumers switching their pension to a poorer value option, ignoring the fine print and key information. This new research aimed to examine how consumers can be supported with better value for money metrics when it comes to their pension.
The study comes ahead of an FCA consultation into VfM metrics, which previously focused on professional users only and where a further consultation is anticipated later in the year. People’s Pension has long called for greater transparency and comparability across the pensions market to improve consumers’ ability to choose, including a consumer version of VfM metrics to be on private-sector pensions dashboards.
Patrick Heath-Lay, CEO, People’s Pension, said: “Research tells us that people make decisions about transferring their pension very quickly, often in less than 24 hours. Too often they don’t have the information they need to make a good, comparable decision, and they end up losing out.
“This latest study from BIT shows that Value for Money metrics, designed for consumer use, is an idea with legs and is something that could ultimately lead to better outcomes for pension savers. Boiling down the most important indicators of the value a pension scheme offers into a metric is more effective in communicating that value than a factsheet. Regulators should make the professional-facing value for money metrics, currently in development, also suitable for consumer use. It’s vital that consumers are easily able to compare the value offered by other pension schemes in a transparent and consistent way, particularly in advance of commercial dashboards being available.”
Sujatha Krishnan-Barman, Head of Consumers and Business Markets at BIT, said: “A well-designed Value for Money metric can help people make the right choices for their pensions. Testing and validating these metrics in the real-world is the only way to fully understand how they will affect consumer decisions. It’s important that the industry and regulators consider how they can be developed to make them consistent, comparable, and ultimately in the best interests of consumers.”
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