Identifying Metrics to Aid Consumer Choice in the Income Drawdown Market
Oxera (2017). “Identifying metrics to aid consumer choice in the income drawdown market”, Oxera report.
In March 2017 Oxera and CESS conducted a behavioural experiment to assess the effectiveness of different summary cost metrics following the introduction of ‘pension freedoms’ in April 2015, when many people have chosen to shift their pension pots into income drawdown products before or at retirement, rather than buying annuities as was typical before the reforms. The project was commissioned by the UK Financial Conduct Authority (FCA) which wished to understand which way of summarising the cost of the product was best able to help consumers to identify, from a range of product options, which was the most cost-effective for them.
In this online experiment, participants were presented with a set of drawdown products (designed on the basis of products available on the market) and a consistent decision-making environment to see how the provision of different summary cost metrics affected their product choices, with all other factors held constant. The experiment focused on the issue of cost—other factors, such as quality of service, were included in the comparison table, but the participants were instructed to focus on cost minimisation in this experiment. The results of the experiment show that two of the five personalised summary cost metrics which were tested had a statistically significant positive impact on the product choices of participants, resulting in them selecting lower-cost products on average, and being better able to select the cheapest product.