This week I found myself reading about psychological reactance.
The reactance theory essentially says that humans are hardwired to dislike having their choices restricted or taken away. When it happens, our instinct is to try to regain the freedom we feel that we’ve lost.
It’s the theory which explains our urge to do the opposite to what we’re told or to take the opposite viewpoint to the one we’re being told to adopt.
I should probably explain how I ended up reading about reactance and why I’m writing about it now, before you begin to think I’ve submitted this article to the wrong publication.
The Work and Pensions Committee recently suggested that the government should make it mandatory for consumers to take financial guidance before accessing their pension benefits. It immediately felt like a bad idea to me, based on a vague notion that people don’t like being told what to do.
However, thinking that perhaps I was projecting my own occasionally cantankerous tendencies onto the population at large, I took to Google (other search engines are available…) for a spot of research. That’s how I came across the theory of reactance.
Mixed messages
I understand that the government has access to scores of behavioural experts, so I’m hoping that someone will point out that this idea seems unlikely to be a great success.
Three years ago, the government told everyone that the money in their pensions is theirs and that they should be able to do whatever they like with it (or at least, research has told us that this is how the public interpreted the pension freedoms message). To turn around now and say that no one can access their money until they’ve taken guidance or advice is unlikely to be well received.
The idea seems most strange because it appears to completely ignore lessons we could learn from processes which are already in place.
For starters, there’s the requirement for investors to take advice before transferring safeguarded benefits worth more than £30,000. I’m not questioning the value of this requirement, but it would be difficult to argue that it’s been popular at face value with consumers or advisers.
Research has shown that many consumers are angry with the need to take and pay for advice, seeing the costs as unreasonable.
Others are frustrated at being unable to find an adviser willing to simply ‘rubber-stamp’ the transfer. Some feel they are being blocked from accessing their money as the government promised they could. Many advisers are frustrated at the reputational damage this has brought to the industry.
Risky business
We can see similar reactions to the risk warnings process in the consumer research commissioned by the FCA and published this summer. The risk warnings process was introduced in 2015, originally dubbed the ‘second line of defence’. Unadvised consumers are required to answer questions in order for their providers to deliver risk warnings applicable to their circumstances.
The research showed that many consumers see the risk warnings as nothing more than a ‘back-covering’ exercise by providers which adds no benefit for them. Others felt the process was a delay tactic by providers who wanted to keep hold of their money as long as possible.
Furthermore, the research also showed that the risk warnings made startlingly little difference to consumers’ decisions: most had already made up their minds by the time they contacted their providers, and the risk warnings process was not enough to change their minds.
It may actually be causing harm; one research paper concluded that: “existing interventions…may even be reinforcing [consumers’] negative perceptions of pensions”.
In this context, it’s difficult to see how a requirement to take guidance at this point would fare any better.
From a reactance point of view, once someone has made up their mind about how to access their pension, outside attempts to influence the decision will seem like attempts to remove the freedom to have made that choice.
The solution, it seems, will be to encourage people to engage sooner.
In fact, ‘encourage’ is probably a key word there. If nothing else, the above shows that trying to force people to engage rarely works, and can even provoke the opposite reaction.
Instead, we need to find ways to demonstrate the importance of advice and guidance, and encourage people to engage on their own.
Evidence of this approach has previously appeared in papers about consumer engagement: now we just need to put it into practice. And that’s a challenge when government pension policy changes so frequently, and in particular when none of the pension freedom options existed when consumers first started saving.
Jessica List is pension technical manager at Curtis Banks
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