The government has been urged to ban pension switching incentives, after research from People’s Partnership and the Behavioural Insights Team (BIT) found that cash incentive offers make savers more likely to ignore the fine print and switch their pension to a worse option.
The survey, which collected views from more than 5,500 pension savers, found that participants were 20 per cent more likely to say that they would transfer their pension once seeing a cashback offer of £100.
This was despite analysis suggesting that higher fees charged by the new pension would leave them more than £1,000 worse off after just five years.
The research also found that there may be a degree of fee insensitivity, as over one-quarter (26 per cent) of participants in the study said they would be likely to transfer their pension even without any incentive, simply based on seeing an offer to transfer.
While the cash incentives were offered through adverts and personal referrals, the results suggested that the mode in which an offer was communicated also did not have an impact on the likelihood of transferring.
However, those who were offered a cash incentive were 20 per cent less likely to evaluate the offer by looking at the finer details of the terms in the offer, via the FAQs, which meant they were unable to judge what they were being offered.
People offered a cash incentive were also less likely to understand the transfer offer correctly, which the report highlighted as evidence that the cashback incentive may be exerting a disproportionate influence on people’s decisions to transfer.
This prompted concerns that this behavioural bias may subvert the effectiveness of safeguards such as providing consumers with the relevant information in an easy-to-understand format.
The survey also builds on previous research from People’s Partnership, which found that nearly three-quarters (72 per cent) of people who had made a non-advised pension transfer didn’t know exactly what charges they were paying on their new pension or what they were charged for their old pension.
In light of the findings, People’s Partnership argued that the pensions industry needs to provide simple, easy-to-understand information for members when transferring.
