Consumer Duty: Concern regarding cashback incentives for pension transfers

05 Jun 2024

First seen on Money Marketing

Evidence, evidence, evidence! It has a similar ring to the old estate agent’s mantra of “Location, location, location.”

Of course, if you followed that rule, you are likely to be living in a home that will always sell at a premium, even when the market is in the doldrums.

I had this thought reflecting on the issue of cashback incentives for pension transfers, and the recent call by The People’s Pension (TPP), a highly regarded master trust, that such incentives might breach Consumer Duty obligations and should be banned. TPP has commissioned some independent academic research that demonstrates that offering a cashback-style incentive can tempt people to buy a higher charging policy.

However, after many years in marketing, I think I knew that. An incentive may be in the form of cashback or as tacky as a free pen, but the presence of the tangible in the short term, perhaps considered to be a “limited offer”, can really help to overcome customer inertia.

Pension Transfer Cashback Incentives

Now, my thinking is that, if the potential customer is motivated by the freebie that comes with their purchase, they will work a little harder to get it and be prepared to give up a bit more information about themselves. Therefore, it’s an opportunity for us to gather and store a little more knowledge about them.

We could perhaps add onto a pension transfer application a small survey-type question such as: “What are the reasons you’ve decided to transfer to our product? Choose your top three from these 10.” One of those 10 options will be your cashback offer.

If they pick out three attributes where the product itself shines, then this is valuable evidence to record for compliance purposes. And if the cashback prompted them into taking this action, then it really was in their best interest.

But, if the customer places the cashback offer as their primary reason, then perhaps it is part of our consumer duty to pause the transfer and check whether they have understood the impact of the increased charges of the plan they may be about to transfer savings into.

This communication should be evidenced. The customer will probably also need an adviser to help them understand what is really important in their financial lives.

Platforms, providers and advisers that follow the mantra “evidence, evidence, evidence” will sleep more soundly at night, even when the regulator announces it is coming on a supervision visit to check on their cashback incentive communications.

Moving to a higher charge product is bad, only if all else is equal. Otherwise, it can still be a good move if the higher charging product comes with attributes that meet a consumer’s clearly evidenced needs.

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