Page 4 - Savings Psyche
P. 4

The savings psyche of the UK
A new approach to pensions and savings
for 21st-century Britain

Foreword                                                       a tendency to doubt and agonise over decisions combine
                                                               to inhibit decision-making significantly. In some consumer
Even in relatively benign economic conditions,                 segments, as many as 90% of people doubt and agonise
those in employment often struggle to make                     over their decisions.
appropriate choices when it comes to
long-term savings. However, continuing                         Behavioural economists have long known that individuals
long-term fundamental challenges which                         will look for any excuse to put off making decisions,
employers and the industry have failed to                      especially when there is no apparent urgency or trigger
address in a coherent and successful manner                    point. Likewise, individuals are also likely to stick with the
have offered a profound new set of challenges                  status quo, even if, in this sample, it means continuing
for savers, from fluctuating economic                          with inadequate levels of savings. The solution in these
conditions and stock markets to low interest                   instances is to nudge people to engage in more suitable
rates and, most recently, increased uncertainty                behaviour, using approaches that make the choice process
due to the Brexit vote.                                        user-friendly and likely to encourage behaviours that are
                                                               largely considered desirable.
Those making savings decisions for the long term would
be forgiven for falling prey to complete stasis given such     In theory, the proposal to introduce a ‘Pensions Dashboard’
circumstances. The findings of the report, The savings         prototype by 2017 offers an ideal opportunity. With the
psyche of the UK, offer some reassurance that this is          Dashboard designed to showcase the value of different
not entirely the case. Savers continue to face significant     pension pots in one place, employers can create an
challenges due to a combination of inherent consumer           information and choice architecture that encourages savers
traits and the generally complex nature of the marketplace     to take decisions that are beneficial to their long-term
for savings products.                                          interests. From there, they can work with the pensions
                                                               industry to raise engagement levels around pensions and
At the heart of the findings is something of a paradox.        promote positive savings behaviours, with the ultimate aim
Respondents seem confident, perhaps overly so, of              of improving the financial well-being of the workforce.
their ability to find and process information, to stand up
for themselves, and to see through spin and gimmicks.          Of course, there will still be many challenges, not least how
However, despite such confidence, even self-reported levels    to get people to engage with the Dashboard in the first
of long-term savings provision are some way below the          place and how to ensure that dashboards move beyond the
ideal level. Notwithstanding the overall levels of confidence  ‘one size fits all’ mindset that is clearly inappropriate for a
observed, there appears to be a significant ‘confidence        UK workforce with disparate needs, values and aspirations.
pinch point’, occurring when savers are faced with the         However, after reading The savings psyche of the UK, most
decision-making moment of truth. Here, pensions paralysis      would probably agree that it is worth a try.
appears to set in. Too much choice and complexity,
significant worries about risk, a general lack of trust, and   James Devlin
                                                               Professor of Financial Decision Making
                                                               Centre for Risk, Banking and Financial Services
                                                               Nottingham University Business School

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