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  • Report
  • 8th Apr 2024

Pension transfer decision making


People often lack confidence in managing their finances effectively and pensions are widely seen as particularly complex and hard to grasp. Research by the Financial Conduct Authority (FCA) shows that 38% of the public lack clarity about pensions in general; 54% are uncertain about how to grow their pension savings and 24% make quick decisions on pension offers, focusing on immediate benefits over long-term value. 

At the same time, changes to the law have given people more freedom to manage their pensions. Pension transfers from one provider to another have therefore been increasing. However, there is the risk that people make these decisions rapidly, focusing on near-term benefits – such as those promoted by commonly seen pension transfer ads – over long-term value. 

This study:

Commissioned by People’s Partnership, BIT ran an online lab experiment with UK pension savers, testing the effect of incentives and referrals on people’s intention to transfer their defined contribution (DC) pension. We found that cashback incentives motivated people to transfer their pensions: people who saw a £100 cashback incentive were almost 20% more likely to say they would transfer their pension to an option that would leave them £1,000 worse off over five years. This was regardless of whether the cashback was promoted through an advert or through a friend. 

Very few people clicked on FAQs to learn more, but those who did had a better understanding of the offer. Importantly, people who saw the cashback incentive were less likely to click through to the FAQs and were less likely to understand the offer. This suggests a dominant feature effect, where the cashback incentive may be exerting a disproportionate influence on people’s understanding, and subsequently on their transfer decision. This could be subverting the effectiveness of safeguards such as providing relevant information in an easy-to-understand format.