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.
