“Nudge, Nudge. Think, Think. Stray No More”
Behavioural economics is big business these days. The Behavioural Insights Team (BIT) – also known as the 'Nudge Unit' - was originally established in 2010 by David Cameron’s coalition government to apply behavioural science to public policy.
BIT is now independent of the UK Government and has operations across the world.
Use of the word ‘nudge’ does not arise from the classic Monty Python sketch, but from the title of a book by two behavioural economists, Richard Thaler and Cass Sunstein. Their book set out how people are influenced by what is known as “choice architecture” into making better choices in their own interests.
Nudges develop insights into the way that people approach decisions, and then those insights are used to design policy.
The Stronger Nudge
In July 2020, an Evaluation Report entitled 'The Stronger Nudge' was published, which explained how BIT was asked by the Money and Pensions Service (MaPS) to undertake trials to evaluate the impact of ‘Stronger Nudge’ interventions on the number of people who receive guidance from Pension Wise, before they access their pension savings.
The three key components of the Stronger Nudge were to outline the purpose of the Pension Wise guidance, increase its prominence by presenting it as a normal part of the pension access journey, and to make it easy for pension savers to book a Pension Wise appointment.
The stronger nudge to pensions guidance
Following on from these MaPS and BIT trials, in May 2021 the Financial Conduct Authority (FCA) published a consultation paper entitled, 'The stronger nudge to pensions guidance', with responses required by 29 June.
However, on reading the consultation paper for the first time - in our capacity as a SIPP provider - our eyes opened wider and our eyebrows moved ever-skywards, as we read the FCA’s proposals contained within it; namely
- At the point that a scheme member contacts us to either access their pension benefits, or asks us to transfer their fund to another provider’s scheme in order to then take benefits, we need to talk to them about arranging an appointment with Pension Wise, before anything else can happen;
- We have to offer to book their appointment with Pension Wise for them; and
- Whether they undertake the appointment, or choose to opt-out from it, we then have to record their decision for FCA-reporting requirements.
Our immediate thoughts were two-fold;
Firstly, the proposed point at which we will need to ask the scheme member if they would like an appointment with Pension Wise is arguably the worst possible point, where the aim is to maximise Pension Wise appointments.
Employing the terminology of Thaler and Sunstein, we have two brains; a ‘planner’ brain, and a ‘doer’ brain. Where members have made a decision to access their benefits, they are in doer mode and so our attempts to get them to attend a Pension Wise appointment at that point, is going to be viewed by them as an unnecessary obstacle to accessing their funds.
Cue lots of heated telephone conversations, coupled with statements like, “But I’ve got the kitchen arriving next week”, or “We’ve got to pay the cruise deposit by the weekend”.
Secondly, if the requirement for booking Pension Wise appointments is going to be placed on pension providers, we run the risk of ending up acting like glorified receptionists.
I can envisage colleagues going back and forth between Pension Wise and the scheme member, trying in vain to agree a date and time for their appointment;
“Yes, Mrs Miggins, I’ve finally managed to get you an appointment at 3:30pm next Thursday”,
“Oh, I can’t do that. I go to bingo on Thursday afternoons with Mabel”.
What we have proposed in our consultation response
In our response to the FCA’s consultation, we have therefore included the following proposed amendments:
- Alert the member to the benefits of a Pension Wise appointment at an earlier part of their retirement journey; for example, when they receive their first 'wake-up' pack at age 50. Their brain is more likely to be in 'planning mode' at that point, and they are likely to be a few years away from being able to access their benefits and therefore not under pressure to receive their funds quickly; and
- Rather than providers wasting valuable time booking appointments, why not take a leaf out of the successful online Covid vaccination booking process, and set up an automatic online booking system for Pension Wise appointments, with the functionality for the member to either rearrange the date and/or time if necessary, or opt-out of the appointment altogether. For those members familiar with the concept of auto-enrolment, such a system could be called 'auto-guidance'.
However, given the possible implications of the FCA’s proposals on providers’ processes and procedures, following on from the MaPS and BIT stronger nudge trials, it is vital that the FCA respond with their final regulations in a timely manner.
If they don’t, perhaps we’ll have to give them a nudge.
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