Nudge or Sludge? Richard Thaler navigates to a better pension .

sludge builds up if water cannot move

If you’re wondering what the difference is between “nudge” and “sludge” you should have been at yesterday’s pioneering pensions event where Richard Thaler was in conversation with Stefan Lundbergh.

Thaler, who is one of the authors of nudge theory, defined nudge as the slowing down of activity , preventing harm or (sometimes) good.

So sludge could be used helpfully to stop people self-harming by getting into conversations with scammers, but it might also do harm by making it hard for people to visit MoneyHelper and Pensions Wise.

Thaler suspected that rather than nudging and stronger nudging people towards guidance, people were actually getting “sludge”.

Which is interesting.

What’s interesting about nudge?

nudge allows water to circulate properly

We’ve always known about nudge as “the line of least resistance”. Empty a bucket of water over a tarpaulin and it will eventually find a way to escape the tarpaulin and return the water to the river and the sea.

So nudge shapes the journey rather than changing the ultimate outcome. I’m interested in events where people do not follow the natural course of events but rebel or “disrupt”. This is difficult territory for behavioural scientists because the currency of disruption is “conviction” which is the only way to defeat the inexorable progress of a default.

I mention two disruptors as ways that organisations can react to disruption and they show that while nudge in a pensions context is fundamentally paternalistic (trustees know best), it has to be responsive to local issues ( or the nudge becomes sludge).

Let’s take a positive case. Pension Bee found that users of the L&G FutureWorld fund on their platform were complaining to each other and to the Pension Beekeepers, that the fund was investing in fossil fuels, this wasn’t the future world that some of the savers wanted to see. Pension Bee sent all the evidence to L&G and asked them to set up a fossil-free fund for them (and for other clients). L&G agreed, those who were in FutureWorld are now in the Fossil Free Fund, the water still flows off the tarpaulin, but in a different way.

Let’s take a negative case. NOW pensions is a huge master trust with getting on for 2m members (maybe more). It specialises in providing pensions to low earners and recently has become involved in providing pensions to those in the gig economy – specifically Uber. Uber drivers tend to be muslim who are instructed to invest according to Sharia Law in Halal investments. NOW operates a very strong default, there is only one way water flows off the tarpaulin and that’s using the single fund made available to savers. This is not a Halal or Sharia style fund. So disruption came to NOW in the form of angry workers and unions and religious leaders and NOW were disrupted in a very public way – not so good!

You might characterise the difference between Pension Bee and NOW as “nudge v sludge”. The key thing about running a successful proposition is that water flows off the tarpaulin as you intend and if you have no conviction, that it flows as the setters of the tarpaulin devise it to.

So what’s interesting about nudge (to me) is that it can work both ways. Most people want to be nudged, but some people want to nudge back – giving feedback which impacts the initial proposition.


You may remember Winston Smith , “the last man in the world” to be an independent thinker , the man who rebelled against group think , the man who was eventually defeated by Big Brother. Orwell’s dystopian vision suggested a world where the dissenting voice was silenced and where everything was sludge.

We all sometimes think we are Winston Smith!

As I listened to Richard Thaler, I was reminded of the coercive power of default thinking to be used as an instrument of suppression – we think today of Russia but try any number of totalitarian regimes. What happens in these countries is that “conviction”, as expressed by those who do not accept received ideas, meets repression and the results for the disruptor are catastrophic.

I am not accusing Richard Thaler or Stefan or any others who got a lot from a great session , of suppression. But I do suspect that those who promote nudge, are uncomfortable with dealing with outliers – those with conviction. This is how it felt yesterday when I brought conviction up – it was awkward!

Yet there are positive examples – such as Pension Bee – where the agility of the organisation can be responsive to genuine conviction and can deliver alternative ways for the water to leave the tarpaulin!

A fully functioning tarpaulin!

You can watch the presentation here

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Nudge or Sludge? Richard Thaler navigates to a better pension .

  1. John Mather says:

    I really wish that this debate could measure what matters to the individual.

    Let us suppose that the objective is to provide the living wage (currently £22,000 pa) at age 70 adjusted for inflation for the pension client and his spouse, say 10 years younger

    How would the subscribers to this blog go about designing a model that makes this happen

  2. BenefitJack says:

    John, in the states, nearly 2/3rds of large employer retirement savings plans have adopted automatic features. Because the median tenure of American workers has been 3% of pay, escalating 1% of pay per year to cap out at 12% of pay, coupled with an employer contribution of 3% of pay. Assuming savings starts at age 22 and continues for 45 years until the individual reaches Social Security Full Retirement Age 67. Assuming the individual uses 100% of her savings to convert to a 100% joint and survivor annuity at 2022 annuity purchase rates, it would provide more than the $24,860 annual income (adjusted for inflation). This would be in addition to Social Security benefits, where the surviving spouse receives the larger of the two benefits earned by the spouses.

    Lots of assumptions and contingencies there.

    Keep in mind that the high turnover rate exposes workers to a number of risks – most American employers are very small (< 5 workers), and most of those employers don't offer a retirement savings plan. Most employers who do offer a retirement savings plan use a vesting schedule for the employer contribution and earnings thereon. For example, during my working years, so far, I have participated in 12 retirement plans, including 3 different pension plans (in which I vested only in one), I did contribute to all 9 individual account retirement savings plans.

    So, a worker needs to be aware of the likely gaps in eligibility for employer-sponsored plans, avoid leakage of monies saved to date, and couple savings in any such employer-sponsored plan(s) with savings in an Individual Retirement Account, and/or a Health Savings Account.

  3. BenefitJack says:

    Henri, I think you would be surprised at how “Nudge” works in the states with 401k retirement savings plans (and other employer-provided benefits). For example, my firm implemented automatic features in 2007. We applied them perennially. In 2011 and subsequent years, over one third of those who were “nudged” (to increase contributions), rejected the default. They did not stop contributing, but, they did disagree with the default action and made a different decision.

    Bottom line, when it comes to take home pay, workers remain independent.

    Keep in mind that everytime there is a “nudge”, regulations mandate specific advance notice that outlines the action and how to opt out.

    In my employer-sponsored retirement savings plan, after the phased implementation of our choice architecture was complete, 95+% of eligible workers were contributing (versus 77% when it was a voluntary enrollment) and 95+% of eligible workers were receiving the full employer financial support (versus 59% when it was voluntary enrollment).

    I can confirm for you that as one who has promoted “nudge” aggressively and perennially, I am not at all uncomfortable with dealing with outliers – those with conviction.

    For those who wanted to opt out, they only needed one click of the mouse – they need not speak to anyone.

    And, I am proud to say, when it came to those who had conviction that the “nudge”, the default, was not right for them, that once a year, they were forced to reconsider ar prior decision to forego participation and the employer financial support. I mean, nothing changes in workers lives, right?! And, my email and phone number were prominently displayed, so, if they wanted to call me each year to complain, ‘just how many times must I tell you that I don’t want to participate in this plan’, they would always get the same response: “just once a year”.

    OK with me if workers felt awkward after they opted out.

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