Value for Money (VfM) metrics can help consumers more effectively compare different pension products.
This is according to research from People’s Pension and the Behavioural Insights Team (BIT).
Research from the FCA in 2019 found that most consumers struggle to effectively identify higher value pension options.
Simple metrics can help consumers better identify higher-value pension products when compared to a factsheet, the current status quo offered by pension providers, research found.
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.
Also, a VfM “sweet spot” exists as too much detail can overwhelm, while too little can reduce trust and worsen decision making.
Additionally, People’s Pension found that VfM metrics “significantly affect consumer decision-making, with different designs causing participants to focus on different aspects of pensions in their decision-making.”
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.”
These findings follow previous research from People’s Pension and BIT, which showed that cash incentives can result in consumers switching their pension to a poorer value option, ignoring the fine print and key information.
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 CEO Patrick Heath-Lay 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.”
BIT head of consumers and business markets Sujatha Krishnan-Barman added: “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.”
These results were based on the results from more than 5,000 UK pension savers.
