Made you look
by Doug Brodie
/1. Are we normal?
Our work at Chancery Lane sits squarely in two specialisations: Empathy and Expertise.
The two are equally important, and of the two we spend more time with clients on the empathy side and the back of house early morning / late nights on the expertise side.
Being sent off to a cold, institutional boarding school in an obscure Scottish valley, with the subject ‘behavioural economics’ I was not an early adopter, though now I am a fierce advocate. Richard Thaler, Daniel Kahneman and Ivan Tversky did the academic studies and wrote the books (Nudge, Thinking Fast & Slow et al). Much of the work around managing pension money is detailed, though not overly complex – to us, but then we work with these things all day every day, and have done so for decades. The key to your behaviour and the decisions you make, is subtly embedded in you, your thought processes, your conscious and subconscious validation filters, all wrapped into an academic discipline called Behavioural Economics. It’s why the picture on top of this blog is what it is – it is selected to ‘made you look, made you stare’.
/2. The influence of behavioural economics on personal pensions.
Behavioural economics - the intersection of psychology and economic decision-making - has become increasingly influential in shaping how individuals engage with their personal pensions. Traditional economic theory assumes people make rational, informed decisions to maximise utility. In reality, cognitive biases, heuristics, and emotional factors often distort financial judgement. This has profound implications for how much people invest in pensions, how they choose investments, and how they manage income drawdown during retirement.
/3. Investment decisions: How much people save.
One of the most significant impacts of behavioural economics is on savings behaviour, especially the amount individuals choose to invest in their pensions. A key concept here is present bias - the tendency to prioritise immediate gratification over future rewards. This leads people to under-save, especially when the benefits of pension contributions are decades away and the costs are felt in the present.
Inertia also plays a powerful role. Many employees fail to opt into pension schemes simply because taking action requires effort, even when the benefits are clear. To counter this, governments and employers have used behavioural insights to design automatic enrolment schemes, most notably in the UK’s auto-enrolment legislation. By making pension saving the default option, participation rates have increased dramatically. This is an example of nudge theory, where individuals are guided toward better outcomes without restricting choice.
Similarly, the concept of hyperbolic discounting - where individuals disproportionately value immediate over future utility - leads to delayed pension contributions or early withdrawals. Behavioural economists argue that aligning incentives with human tendencies, such as matching employer contributions or providing future salary-linked increases in contributions (Save More Tomorrow programmes), can improve long-term saving outcomes.
/4. Asset allocation: How people invest.
Behavioural economics also influences the way people invest within their pension schemes. One prevalent issue is choice overload. When presented with too many investment options, individuals often fail to engage, or they default to options that may not suit their risk profile. As a result, many investors rely heavily on default investment pathways, such as lifestyle funds or target-date funds, which are pre-set to adjust risk over time.
The status quo bias means investors are reluctant to adjust their portfolios even when their financial situation or risk tolerance changes. Combined with a lack of financial literacy, this can lead to suboptimal investment decisions - for example, staying overly conservative in one’s 30s or taking unnecessary risk in later life.
Loss aversion also shapes behaviour: people fear losses more than they value gains. During periods of market volatility, some investors panic and sell assets at a loss, rather than sticking to a long-term strategy. This undermines returns and can cause individuals to miss out on market recoveries. Pension providers increasingly use behavioural prompts and educational nudges, such as visualisations of future income or warnings about market timing, to counteract these tendencies.
/5. Income drawdown: How people spend in retirement.
The rise of income drawdown (where retirees manage their own withdrawals rather than buying annuities) has created new behavioural challenges. Many individuals underestimate their life expectancy and risk outliving their savings. Others fall prey to mental accounting, treating pension pots differently from other assets, or struggle with the decumulation puzzle - the reluctance to spend even when it is financially safe to do so.
Behavioural economics suggests that framing and defaults are crucial here. For example, modelling income as a regular “salary” rather than withdrawals from a pot can improve spending confidence. Some pension providers now use guided drawdown pathways, based on spending goals and longevity projections, to steer retirees away from poor decisions.
/6. A final note.
Behavioural economics has revealed that pension decisions are less about logic and more about psychology – who’d have known?. From overcoming inertia in saving to navigating complexity in investment choices and drawdown strategies, behavioural insights have become essential to designing better pension systems. By recognising the limitations of human decision-making, policymakers and providers can use nudges, defaults, and framing to help individuals achieve greater retirement security - not by changing who people are, but by making systems work with, rather than against, human nature. That’s why we do what we do in Chancery Lane, and the people we are, are people just like you. (And we had all the best music, and gigs, and films ….)