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 did not help 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 standardised fact sheet performed “quite well”, scoring 6.2 out of eight.

She said that this suggests that “simply providing the information in a consistent standardised model across all the options already helps savers make a decision”.

However, she said that two designs “clearly” outperformed the rest, the five-point red, amber and green (RAG) and the net benefit plus service rating, which she said both “significantly improved” by visibility to short lists of higher quality pensions.

Indeed, the research revealed that simple metrics can help consumers better identify higher-value pension products when compared to a factsheet, the typical current approach offered by pension providers.

Meanwhile, Krishnan-Barman noted that the three-point RAG rating made things worse even when compared to the eight fact sheets.

“It was too blunt, lumped too many options together, and led to poor quality of decision making,” she continued.

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

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.

Previous analysis from the master trusts illustrated the vulnerability of people 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 master trust’s previous research with the Behavioural Insights Team found that cash incentives can result in consumers switching their pension to a poorer value option, ignoring key information and the fine print.

People’s Pension 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 research shows that people make decisions about transferring their pension very quickly, often in less than 24 hours, and too often they don’t have the right information they need to make a good, comparable decision, and they end up losing out.

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.”

This study proceeds an FCA consultation into VFM metrics, which previously focused on professional users only and where a further consultation is anticipated later in the year.

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