This is nothing very new about the research organised by People’s Partnership to assist their campaign to stop cash incentives being used to seduce savers into swapping cheap workplace pensions for expensive SIPPs.
It would seem that pension companies, like politicians, are seen as all the same. If you take this view, selling the management rights to your pension pot for £100 looks like free money.
Ten years ago, Steve Webb railed against the trustees of the Boots pension scheme for offering “SEXY-CASH” in exchange for pension indexation.
Cash-back offers abound in financial services, Martin Lewis runs a newsletter full of them.
Now Patrick Heath-Lay, CEO of People’s Partnership is calling for cash incentives to switch pension pot providers to be banned
Here is the press release
Offers of cash incentives make people ignore the fine print and switch their pension to a worse option…
The provider of The People’s Pension commissioned BIT to conduct an online experiment3 with more than 5,500 people who hold a UK pension to test how they would respond to invitations to transfer their pension both with and without an incentive. They found that participants were 20% more likely to say that they would transfer their pension once seeing a cashback offer of just £100. That is despite the fact that higher fees charged by the new pension would have left them more than £1,000 worse off after just five years4.
People’s Partnership believes the pensions industry needs to provide simple, easy to understand information for members when transferring, and is today calling for pension switching incentives to be banned, given the clear role they play in inhibiting people’s likelihood of reading the small print – critical details which make thousands of pounds of difference to a pension at retirement.
Patrick Heath-Lay, CEO, People’s Partnership, said:
“This research shows cash incentives bias the pension transfer process in ways that are often harmful as they act as a barrier against people considering what is on offer and whether it is value for money. They are also less likely to read and understand basic details about their new pension, even when these are prominent, and they stand to lose money.
“Healthy competition between pension providers should be based on the quality of pension products, not marketing tricks that exploit flaws in the way people think. We believe this research highlights practices that are contrary to the FCA’s Consumer Duty.
How people make choices about who manages their pension savings is their business. It is ironic that after all the emphasis on value rather than price, the People’s determinant for consumer decision making is still considered price
If people are making long-term decisions based on sexy-cash today then that doesn’t say much for the pension industry’s capacity to engage with its customers. This was Steve Webb’s argument with Boots who he accused of exploiting the ignorance the trustees had helped create.
I had a long call with a financial journalist yesterday concerned by complaints from consumers that they could not transfer from pot to pot without impediment. We learned this week that one IFA is charging £120 as an “information fee” to clients wanting to transfer money away from it. We know how expensive it is to transfer away from SJP in the early years of a pension investment, last year over 16,000 people had to go to a MaPS interview to explain why they wanted to transfer. The interviews regularly ended with both MaPS and the saver non-plussed about why the referral had been made
I wonder why we think we should be intervening so heavily in the transfer of pension rights, then I remember that the pension is the scammers favored target. Why? Because a large proportion of the population really don’t have a clue about how pensions work.
When they find an organisation that gives them the comfort that it is on their side and will help them take back control of their money, they will often put their trust in it without reading the small print. In this People’s Partnership research is correct.
But why should they feel that way about the pension they want to leave?
I won’t labour the point , but people are interested in pensions because they provide money in later life and for anyone over 55, money now. If they have no idea of the plan for their pension, they won’t be bothering about the minutia like AMCs, no matter how important we know them to be.
In the days of yore, when “money purchase” meant buying a pension and a pension was something which gave you a wage in later life, the plan was clear.
Today there is no plan, only a pot and people have little idea of the purpose of the pot other than it being a lucrative capital reservoir , access to which is forbidden by a complex set of rules and the forbidding presence of the pension provider who they had no choice in selecting.
In such circumstances, is it any wonder that they aren’t reading the small-print?
Value for savers
If a pension pot is no more than a tax-incentivised savings plan, then people will treat their pots as interchangeable and combine around the most agreeable pension company. Part of being agreeable may be a cash payment but there is no evidence that people will be the wiser for not being blinded with cash.
Instead of moaning about marketing magic, People’s Partnership should be giving their savers reasons to stay. That means building a relationship based on value for money not simply low charges. What people value is the right kind or outcomes for their saving and that means more than a low AMC.
If people choose to stay with People’s Partnership because the people get pensions, then cash incentives will become as irrelevant. If £100 is the value people place on the sale of their pension rights – that’s a sad indictment of our workplace pensions.
For too long administration has been treated as the Cinderella service, necessary, actually does a huge amount of the work to run the pension but does not have the sexy marketing outings, expense account dinners, or the largesse of the city slickers.
Consequently interactions with pensions often result in a very poor service. Is it any wonder that members are fed up when their pension provider hides their phone number then doesn’t pick up the phone anyway; gives contradictory confusing information; takes weeks to answer a letter asking for a withdrawal with 100 pages of bumf and a leaflet warning about scams; takes months to decide that actually you must have a conversation with MoneyHelper to transfer your pension after all etc etc
Getting the simple things right would have a massive impact to improve engagement and satisfaction eg stop hiding your phone numbers, hire enough staff to respond to calls and letters promptly and use simple language. If members can’t easily speak to someone about their pension they automatically think the provider is hiding and deliberately discouraging/delaying or stopping them from accessing their own money.
Very true. We have a client trying to buy an annuity. He has 5 DC pots. Four with life offices that were transferred to the annuity office promptly via Origo Options. The fifth is with WTW/LifeSearch, a well-known master trust arrangement. Everything has to be done on their cluncky online system. The annuity provider write with the requisite documentation of 4 March. Zero response and WTW will not take incoming calls from receiving schemes nor IFA’s. The client, poor fellow, has tried and tried to get through to someone at WTW to chase them up, to no avail. Hopeless and the annuity rate has dropped a little since we began this process in February. Disgraceful.
In 2012 the Incentive Exercises Code banned incentives to transfer. Defining what was acceptable was very difficult because incentives by their nature are to entice. Small incentives were only permitted by the Code in order to encourage people to engage in the process, ie they are payable regardless of whether the transfer went ahead. The 2021 transfer regulations from DWP flagged incentives as a scam sign. Small incentives are normally not a scam, but they do have to be paid for and the research by People’s is interesting in showing how an incentive could lead to detriment in some circumstances. So many providers offer small incentives that it becomes standard practice and no one wants to be the one to stop.
I have multiple bank accounts with multiple banks all of which I access online. This morning to make money available for my 2024/25 ISA investment, I moved money five times from account to account within and across different banks in less than 15 minutes.
I also have 3 DC pension pots with different providers all held for 10 years or more, including a SIPP, a stakeholder pension, and a FSAVC (remember them?). My self-select SIPP with a well known online platform provider I manage in exactly the same way as my banks and ISAs. With my stakeholder pension where I manage my own fund allocation, I can obtain a valuation statement online but if I wish to change my investment allocation or even submit a revised Expression of Wish form, I have to do so through my IFA. MY FSAVC is entirely paper driven and then only if you are lucky!
With the blessing of my IFA, I am now in the process of consolidating my pots (all of which are above the advice threshold). It is however a source of great frustration to me that I cannot manage my pension pots in the same way as my other investments and bank accounts. For me the desired outcome is the same as for my investments which is to provide future income in excess of my existing State and occupational pensions to meet living costs and potential care costs in later life. I am now sufficiently old to allow me to draw upon the pension funds should those needs occur sooner rather than later.
With my many years background in the industry I am fully aware of the differences, particularly in relation to tax treatment, between a pension pot and another form of investment, but those distinction are not immediately obvious. The temptation with online access to information on your pension pots is that you regard the funds purely as balances to be moved from product to product entirely at your current desire. Even quite small incentives become worthwhile if you do it frequently enough – such as Martin Lewis’ suggestion to “daisy chain” funds through incentivised bank accounts requiring a minimum level of monthly deposits.
The problem is likely to get worse with increasing availability of online information especially through the Pensions Dashboard.