Money matters

Reframing information to increase comprehension and action

The Behavioural Architects have also drawn on the technique of reframing pensions information to make it more meaningful and encourage action. We worked with a large financial services company to redesign the annual statement for retirement savings accounts. These are typically very dry, complex and poorly presented documents. Merryn Somerset Webb, editor of the personal finance publication Moneyweek recently commented:
“I used to have a workplace pension with Standard Life. It was awful. I got a letter every year with a “plan summary” on it. It told me last year’s value, this year’s value and the amount added into my plan over the year.”
For most people, these numbers are pretty meaningless and can also lead to what behavioural scientists call ‘illusion of wealth’ effects - thinking we have saved more than we really have prompted by seeing the value of the lump sum saved so far. It can lead us to feel ‘rich’ and overconfident about having saved enough for retirement. A lump sum of £100,000 can seem like a lot to someone mid-career, earning an average salary, and may encourage them to rest on their laurels, but it is nowhere near enough to fund a retirement.
Research carried out by behavioural scientists Shlomo Benartzi, Hal Hershfield and Dan Goldstein tested ways to counter this effect in a small field experiment run in conjunction with a financial advisory firm. Financial advisers phoned 139 of their clients and told them how much money they had saved - either as a lump sum or in terms of what that sum would roughly equate to as their projected monthly income in retirement. They then asked them if they would like to change their current savings rate and if so, what that new rate would be. 36% of people who were quoted the monthly income figure opted to increase their savings, compared to only 21% of the lump sum group. In addition, those quoted the monthly income figure increased their savings rate by more than those quoted the lump sum figure.
This finding demonstrates how reframing a lump sum figure into more meaningful numbers, such as monthly income or annual income, can prompt people to increase the amount they are saving. We automatically compare such income figures to our current salary which could help us to realise that we need to save more if we want to maintain a similar standard of living.
Keeping this in mind, we worked with our client to redesign the front sheet of their annual statement so that the lump sum saved so far was also converted into a projected annual income in retirement. For example, rather than a projected lump sum of £200,000 based on current savings and rate of future saving, we displayed it as a £13,000 per annum income in retirement. Enough not to starve, but hardly likely to provide a comfortable standard of living for most. This is the kind of shock trigger that might be necessary to prompt increased engagement with retirement planning.
This and other changes we recommended led our client to be rated in first place (with a score of 7.6 / 10 from an earlier score of 5.8) by an independent ratings agency for pensions information provision.