insight

Consumer engagement: the role of policy through the lifecourse

Evidence type: Insight i

Context
The study
Key findings
Points to consider

Context
The study
Key findings
Points to consider
Full report

Context

This report begins from the premise that retirees in the future will bear more risk at and during retirement than previous cohorts. The authors note that people do not have the necessary capability or support to make optimal decisions about long-term saving, increasing the need to ensure that support and safety nets exist for those who find navigating such decisions challenging. While behavioural nudges are increasingly viewed as a means of helping people to achieve better outcomes from long-term saving, some feel they are not alone sufficient to help everyone realise their full potential benefit from long-term saving.

The study

This report explores the role that behavioural techniques play alongside other policy levers to help people achieve better long-term saving outcomes throughout the lifecourse. It does this in six ways:

An exploration of current engagement levels using insight from behavioural techniques, particularly looking at the kind of policy decisions that could be carried out in order to further people’s interests
A look at the ways children engage with financial concepts
An assessment of the ways young adults engage, including the different triggers which might affect changes in saving throughout their lifecourse
A look at the ways adults engage with long-term saving and where in their life policymakers or financial education providers might be able to influence their behaviour positively to saving for a pension
A look at the ways people approaching retirement might engage and how people’s particular needs for guidance and support pre-retirement might be met
An exploration of the needs of people at and over State Pension age and how a range of policy measures, including behavioural interventions, could help them to achieve better pension outcomes.

The modelling used in the report to draw on individual’s behaviours is based on the Pension Policy Institute’s Individual Model which uses a series of key economic assumptions and scenarios.

On the pensions system the author assumes the following:

The pension system modelled is as currently legislated
The triple lock is assumed to be maintained
Individuals are assumed to be members of a Defined Contribution (DC) occupational pension scheme.

On investment returns they use rates of:

Median equity return: 7%
Median gilt return: 4%
Median earnings growth: 4.3%
Median CPI growth: 2%. Other economic assumptions:
Short term assumptions taken from the Office for Budget Responsibility’s Economic and Fiscal Outlook
Long term assumptions taken from the Fiscal Sustainability Report.

Key findings

The study doesn’t make specific recommendations, but makes the following observations about the particular contexts within which behavioural interventions are most effective.

When are behavioural interventions most effective?

Behavioural interventions are most effective when they are applied during teachable moments. Teachable moments will vary between people by age and circumstances but generally occur during key periods in a person’s life such as:
- Moving house
- Getting a job or starting a family
- During other times when someone is making financial decisions such as buying financial products.
Behavioural interventions are most effective when they also take into account the following:
- Prior levels of knowledge and understanding
- Personal circumstances
- Cultural attitudes
- Income levels
- Gender
- AgeWhat is the most effective format of behavioural insight
Younger people, those with low financial capability and those on lower incomes respond better to peer-led interventions
Younger people are most likely to turn to digital methods for advice, information and guidance, though may find these confusing and difficult to act on
Older adults, particularly those over age 75, generally have lower financial capability and will be less likely to have access to or understand how to use digital methods
For older adults, face-to-face interventions (group or individual) are more effective and peer-led interventions can greatly assist communication with older, isolated people
As current generations age, it is expected that the levels of digital ability, financial capability and confidence will grow amongst older cohorts
Letters, posters and advertising can help build awareness, but are less effective than interactive, personalised interventions through face-to-face, via phone, web-chat or group education
People of all age groups are highly susceptible to media campaigns, particularly via TV and, for younger people, social media
Older adults, those with higher financial capability and those with higher incomes respond better to individualised, high level or complex information from finance professionals.When behavioural interventions are at their least effective
According to the report those with low levels of capability are more likely to experience negative outcomes from interventions aimed at promoting active decision-making unless educational support for the decisions are included in the intervention.

Points to consider

Relevance:
- This report will be particularly relevant to those interested in consumer engagement into either personal savings and/or pensions. It will very useful for those interested in how behavioural interventions can be a useful tool in increasing positive outcomes for consumers.
Methodological strengths:
- This report employs a very robust method of inquiry into financial decision-making: not only does it look at the evidence into what policy levers are most effective when increasing positive savings outcomes for consumers, it also considers individual actions and behaviours in relation to real life scenarios. For example the author points out that care must be taken when interpreting the results in the report because individuals are not considered to change their behaviour in response to investment performance.