- Great to see DWP plans to force pension firms to produce standardised simple annual statements.
- Customers need simple language to help understand and engage with their pensions.
- Pensions Dashboard will not work without standardisation – and accurate dat.
- New statements should be promoted and explained by national public information campaign.
Standardised, simpler statements need to be mandatory for all providers: The DWP has just released its decision in response to the consultation on simpler, standardised annual pension statements. I am delighted that it has decided to impose mandatory standardised annual simple statements, with the aim of helping pension savers to understand pensions better and engage with their pension savings, so they make the most of the advantages of saving for retirement.
This is a vital first step in making pensions more user-friendly: My response to the consultation supported the simple 2-page statement, showing each customer’s pension value, how much they have paid into it, how much has come from their employer and the Government, what charges they pay and how much their pension may be worth in future (using standard assumptions). I also supported mandatory rather than voluntary compliance, to ensure providers cannot just choose to persist with their own confusing communications.
Starting with auto-enrolment workplace schemes paves the way for wider adoption: Pension statements can have a key part to play in helping customers understand what pensions are all about. Ideally, all schemes will send the same type of communication, using the same language and a standardised approach, without confusing jargon, or other baffling wording, but at least starting with workplace schemes will set a good precedent for others to eventually be forced to follow. Many providers seem afraid of not including the correct information, which leads them to produce multi-page statements which are never read or understood by customers for whom they are supposed to be informing. Pension providers need to send communications to suit customers, not themselves or intermediaries who of course understand all the baffling terminology.
Simple Statements can form building blocks towards the Pensions Dashboard: Standardised simpler statements are an essential ingredient for future success of the Pensions Dashboard project. Some pension providers may not be able to produce digital information for legacy pension schemes, but eventually requiring all pension schemes, not just workplace providers, to produce standardised annual statements could then be fed in to a Dashboard to help customers or their advisers more easily see a complete picture of all their pensions.
Statements can show workers how much ‘free money’ goes into their pension, on top of their own contribution: I congratulate Ruston Smith, together with QuietRoom and Eversheds, who developed an excellent prototype 2-page statement. This would show clearly how much customers themselves have actually paid into their pension and how much has been added by their employer and by Government tax relief. The complexity of pensions and the opacity of current statements, means most individuals do not see the ‘free money’ that is added to their pensions. Helping each customer see they have only paid part of the fund, with others adding more money than if they were saving just in ISAs or other products, can boost engagement.
Statements will be sent out in a ‘Statement Season’, showing information about charges, investment strategy and ESG: The Government wants to send the simple, standardised statements at a similar time for everyone, to help normalise the idea of pensions and encourage people to discuss their pensions in language they can become used to, because it is standardised and simpler. The Statement will also have to give information about the investments each worker’s fund holds, the policy on Environmental, Social and Governance issues and also at least a line about costs, which will refer them to further detail on charges if they want to see it. The statements will also be designed to help customers understand how much pension their current fund might deliver for them, based on standardised DWP assumptions that all providers will use.
A national public information campaign is also proposed to encourage people to study their simple statement: The current statements from many providers (with notable exceptions of course where some providers have tried to issue simpler information) are impenetrable and jargon-laden, which means most people do not readily engage with their pension information. A nation-wide marketing and PR effort could prompt people into opening, reviewing and thinking about the proposed new, much easier-to-read pension information. Mandating the use of these new statements is a radical new approach that can help consumers, improve engagement and revitalise interest in pensions alongside auto-enrolment. I hope that the consultation and regulations will be introduced rapidly.