Value for money (VFM) metrics “significantly” affect consumer decision-making, with different designs causing participants to focus on different aspects of pensions in their decision-making, research from People’s Pension has found.

The study, which involved more than 5,000 UK pension savers, tested whether VFM metrics, like the Financial Conduct Authority’s (FCA) proposed industry-facing metrics, helped or hindered consumers when they were asked to compare different pension products.

The trial was online and randomised and saw savers assigned to view one of four distinct VFM metric designs or a factsheet, which served as the control group.

Participants were asked to shortlist three pensions from eight unbranded options and received a higher score for shortlisting better value pension options.

Speaking in a session at the Pensions UK Annual Conference about the research, the Behavioural Insights Team principal adviser, Sujatha Krishnan-Barman, said the VFM metric design of the three-point red, amber and green (RAG) rating "actually made things worse" even when compared to the eight factsheets.

Krishnan-Barman said that the research found that the three-point RAG was "too blunt, lumped too many options together, and led to poor quality of decision making".

The three-point RAG system, which is part of the FCA's proposals for VFM, would see a 'red' assessment signify poor value and a scheme in danger of wind-up, 'amber' would mean there's room for improvement, and green would signify the scheme provides VFM.

However, this system has received criticism from the industry, with some experts calling the system "too blunt and severe" and stating that "under these proposals, anything short of a green rating is a failure".

Others in the industry said the current proposals place "overtly negative connotations" on an amber rating and recommended the proposed amber rating be changed so that instead of being a “broadly negative assessment”, it would be instead considered “VFM with room for improvement”.

The research by People's Pension found that two designs that “clearly” outperformed the rest, which were the five-point RAG and the net benefit plus service rating, which Krishnan-Barman said both “significantly improved” the participants' ability to shortlist higher quality pensions.

The factsheet, the typical current approach offered by pension providers, even performed “quite well”, according to Krishnan-Barman, scoring 6.2 out of eight, suggesting that “simply providing the information in a consistent standardised model across all the options already helps savers make a decision”.

“So, the design really matters, not all large money metrics are equally helpful, and some can actually be counterintuitive," she said.

Overall, the study highlighted that there is a “sweet spot” in simplification, as too much detail can overwhelm, while too little can worsen decision-making and reduce trust.

The master trust has previously been vocal on the need for greater transparency and comparability across the market to improve consumers’ ability to choose, including a consumer version of VFM metrics to be on private sector pensions dashboards.

People’s Pension CEO, Patrick Heath-Lay, said this study shows the VFM metrics designed for consumer use are something that could “ultimately lead” to better outcomes for 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,” he said.

“Regulators should make the professional-facing VFM 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.”

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