In April 2015 the UK Government will introduce big changes to the rules surrounding how people can access their pension pots. The changes are complex, but the overall effect will be to give pension holders much more flexibility to spend or invest their savings as they choose when they reach 55.

With this increased freedom and choice, concerns have been expressed about whether people will manage their money wisely, and what effect this might have on their financial wellbeing during retirement.

The Association of British Insurers (ABI) asked ideas42 to look at what behavioral science can tell us about how pension holders are likely to behave in this new environment.

Our report, published today, outlines our analysis and gives some initial suggestions about what industry players, regulators and the UK Government could do to help people make decisions that are in their own long-term interests.

In doing this, we looked at every stage of the process, from when people start thinking about planning for retirement all the way through to actually making a decision (if a decision is made at all) – and the many steps in between.

Our analysis identified a large number of behavioral bottlenecks that might play a role in people’s decisions and actions. These are bottlenecks that could lead to people:

• Not taking up the free guidance sessions offered by the Government.
• Making decisions about their pensions on the basis of unreliable information.
• Withdrawing large sums from their savings pot and not re-investing it sensibly.
• Falling prey to scams and aggressive marketing.

You can read more about these bottlenecks, and the psychological and contextual factors that cause them, in the report.

We hope this will provide a useful resource for everyone involved in implementing the reforms in the UK, as well as helping policy-makers in other countries gain a deeper understanding of the behavioral aspects of retirement planning.