A new study has shown that different value for money metrics can positively influence savers’ decisions, particularly their ability to choose high-quality defined contribution (DC) schemes.
The study, commissioned by the People’s Pension and carried out by the Behavioural Insights Team (BIT), conducted a trial with 5,005 UK pension savers to test how different designs of value for money metrics influenced their ability to pick a high-quality scheme.
The savers were tasked with shortlisting three preferred pensions from eight options, each presenting trade-offs in performance, costs and service quality.
Five different metric formats were tested. These were:
- A detailed fact sheet
- A simplified red-amber-green scale
- A more detailed, five-point red-amber-green scale
- A net benefit and service rating, showing explicit monetary return alongside a separate service rating
- A dis-aggregated rating, showing a separate rating for each of performance, charges and service quality
The study found that overall, participants achieved better outcomes as a result of using value for money metrics.
However, the kind of metric used influenced how well savers were able to identify top-tier pensions.
Those who used the red-amber-green metric struggled the most to differentiate effectively among the best pensions. This was also the least trusted and understood metric.
The research, shared exclusively with International Adviser, found that the fact sheet provided better outcomes and was more widely trusted, but some participants still found it confusing.
Overall, the more detailed, five-point red-amber-green metric led to participants most consistently shortlisting top-tier pensions. The net benefit and service rating also led to strong outcomes, with customers strongly influenced by the monetary figure.
The research concluded that metrics that strike a balance between being easy to understand while containing important information could lead to better customer outcomes.
The report said: “There is a risk that oversimplification could misguide rather than assist, at least if the intention is to
support identification of good pensions, rather than just avoidance of poor options.
“The 5-point red-amber-green and net benefit metrics, on the other hand, helped homing in on stronger performers. This suggests that adding granularity – particularly within the ‘green’ category – can support more informed and confident choices.”
Patrick Heath-Lay, chief executive of 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 fact sheet.
“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.”
