1 New Choices, Big DecisionsSponsored by: New Choices, Big Decisions Exploring Consumer Decision Making and Behaviours Under Pension Freedom and Choice
2 We wanted to understand members’ ‘normal’ decision making behaviourresearch methodology We wanted to understand members’ ‘normal’ decision making behaviour People aged 55 to 70, who expected to make a retirement income decision from a DC pension pot within 3 months WHO’S IN? Those with a combined pot over £250k or a combined pot of less than £30k WHO’S OUT? Those with DB entitlement which would be more than 60% of expected income Group and individual scheme members, but weighted towards group schemes Those planning to downsize to fund the majority of their income needs in retirement People who currently have an adviser, those who have used an adviser in the past, and those who have never used an adviser Those with more than two buy-to-let properties 2
3 Our longitudinal study is a very rich data setresearch methodology Our longitudinal study is a very rich data set 1. BEFORE THE DECISION Explore intentions, analyse needs & motivations, and collect baseline date, e.g. Demographics. Background on their finances. Importance of pension to financial well-being. Baseline knowledge of the changes, include tax rules. 30 minute depth interviews with 110 people intending to do something with their pot 2. DURING THE DECISION Explore journeys as people navigate pension freedoms: Options explored? What drives behaviours? What information has been sought and at what stage? Why did/did not seek advice? Feelings about the process? Useful interventions? Triggers for a decision? 80 active diary participants 500 diary posts & 80 video blogs, spanning 8 months 3. AFTER THE DECISION Detailed examinations of the final decision made via a depth interview: Rationale for final decision? How this differs from initial intentions? Feelings about the process? What would they do differently if they had their time again? 1 hour depth interviews with decision makers 3
4 What is driving members’ behaviour?Pensions now feel very different After a brainstorming session with the lads in the pub recently, one suggested Male, 60 years old, diary entry 4
5 What is driving members’ behaviour?Messages they are picking up makes them feel like they should be doing something with their pension money Place Holder for Video Montage 5
6 WHAT IS DRIVING MEMBERS’ BEHAVIOUR?People want to make sensible decisions… It’s a very serious matter. If I muck up at 60, I muck up for the rest of my life, I've got to get this absolutely correct and that’s the problem. It’s a minefield. Male, 64 years old, final decision interview …but, fundamental human nature makes this difficult 6
7 decision MAKING IN PRACTICEPlethora of information available, but people struggle to navigate to information that is pertinent to them Too much information – who to trust? Most sources give the same fact-based information on options. No consistent terminology – am I reading the same thing? One size fits all – difficult to relate what they are reading to their circumstances. I have decided that I have done so much research that a) I don’t need financial advice and b) I could probably become a financial adviser myself! Worried about the ‘unknown unknowns’ – what am I missing? 7
8 decision MAKING IN PRACTICEGood awareness of the Pension Wise service… I logged onto Pension Wise, and was pleasantly surprised. It talked in plain English and was easy to understand. It was easy to navigate. Gave advice on tax, scams, and adjustable income, which I did not know about. I would use this again for reference, although I don't want to have an interview. Female, 56 years old, diary entry I’ve been out all day in the car with my husband and we were listening to Heart FM and it kept advertising the new website for info on pensions called Pension Wise. Female, 60 years old, diary entry 8
9 DECISION MAKING IN PRACTICEVery few booked an appointment with Pension Wise, but it was highly valued by those that did 4 in 10 visited the website… Doubt it would tell them anything new, especially as they cannot offer advice A free consultation with a financial advisor is a better use of their time …but, just 1 in 10 had an appointment Not sure about the quality of the advisers, based on what they had read in the press Saw a Pension Wise advisor yesterday... I was impressed... He spoke in a calm manner, didn't use a lot of jargon and also responded appropriately after realising that I knew some things about my options, and didn't treat me as a complete pension novice… All in all, 45 minutes well spent and I'd recommend taking the opportunity of the free appointment. Female, 60 years old, diary entry 9
10 DECISION MAKING IN PRACTICEFew used a professional adviser, beyond the initial consultation Some had poor ‘advice’ experiences in the past Some did not know where to go to find someone they can trust A few were nervous of appearing stupid if they did not understand what the adviser was telling them Some were surprised and disappointed to find out that advisers were reluctant to take on their business Many were simply put off by the cost - especially those with smaller pots 10
11 decision MAKING IN PRACTICEPeople are feeling overwhelmed by the task and are worried about making the wrong decision Place Holder for Video Montage 11
12 Q. What do you intend to do with your pot?WHAT DID THEY DO? The best laid plans of mice and men… Q. What do you intend to do with your pot? Cash 41 of 80 Annuity 10 of 80 Drawdown 7 of 80 22 of 80 Income? 7 10 41 22 15
13 Q. What was your final decision?WHAT DID THEY DO? The best laid plans of mice and men… Q. What was your final decision? Cash 41 of 80 11 10 19 1 22 of 80 Income? 4 1 9 3 2 Annuity 10 of 80 1 2 6 Undecided Drawdown 7 of 80 3 1 16
14 Q. What was your final decision?WHAT DID THEY DO? The best laid plans of mice and men… Q. What was your final decision? 15 of 80 Cash 15 12 of 80 ZID 12 Undecided 37 6 4 6 6 of 80 6 of 80 Annuity Drawdown 4 of 80 Blend 17
15 Place Holder for Video MontageWHAT DID THEY DO? Many were simply too overwhelmed to make a decision Place Holder for Video Montage 15
16 WHAT DID THEY DO? 37 of our 80 respondents failed to make a final decision by the end of our eight month study I’m overwhelmed by it all/ Life just got in the way The process is taking much longer than expected I no longer have an urgent need for the money My provider or adviser made me realise I don’t actually need to access my pot now I’m worried about turmoil in the stock markets, so I’ll hold off for now I didn’t want the tax hit and realised it was better to access other savings I found out I can’t access my pot yet or I would have to pay a penalty 16
17 Place Holder for Video MontageWHAT DID THEY DO? Most decision makers have taken a lump sum Place Holder for Video Montage 17
18 Most decision makers have taken a lump sumWHAT DID THEY DO? Most decision makers have taken a lump sum Lump sums taken by respondents in our study Note: Based on stated intentions of the 38 respondents who took a lump sum withdrawal during our study window, including those that withdrew their entire pot. Respondents often intended to use their lump sums for a number of different purposes and have been multi-coded accordingly. Stated Intentions for Lump Sum Withdrawals 18
19 WHAT DID THEY DO? Few knew what the remaining 75% is invested in, the charges, or why they should think about shopping around Very low awareness of what pension is invested in – other than stocks and shares. Unless they have consolidated into a SIPP, awareness of charges is extremely limited. If their existing provider offers flexible drawdown, few shopped around. Generally, no idea where to go to shop around, or how to compare one drawdown proposition against another, other than brand recognition. Few expect this money to last for life, instead planning for a 5 to 10 year time horizon. Perceptions of risk and reward are not always aligned to the views the industry would take. 19
20 We have identified seven ‘pension personalities’WHAT DID THEY DO? We have identified seven ‘pension personalities’ 20
21 WHAT DID THEY DO? Procrastinating Pete 21
22 Spend it Simon and Winding Down WendyWHAT DID THEY DO? Spend it Simon and Winding Down Wendy 22
23 IMPLICATIONS People tend to follow the path of least resistance, and need help to achieve good outcomes Rules of thumb Smart ‘drawdown’ defaults Industry-wide lexicon Help to understand what are the ‘best’ drawdown products Low cost advice solutions – will robo-advice do the job? 23
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