Government could legislate on pension simpler statements

Pensions Minister Guy Opperman has said that the government will introduce legislation designed to force schemes and providers to issue short and simple pension statements if they do not take on its recommendations on a voluntary basis.

The warning has come after the government released a consultation paper on the simplification of workplace pension statements.

Opperman wants providers to commit to giving savers clear information about their pension prospect, ideally on no more than two sides of A4 paper.

“Pension statements are too long, too wordy, full of jargon and confuse savers,” he said. “People don’t read them, or if they do they can’t make head nor tail of them.

“Simpler statements provide clear information that people will actually understand and this will encourage them to save more. I want pensions schemes to drive forward real change quickly but, if necessary, I will consider regulation.”

In the paper, The Department for Work and Pensions (DWP) explains that it wants to gather opinion on how to make statements shorter and easier to understand, while also addressing three key questions: how much money savers have in their pension pots; how much money they could have when they retire; and what they can do to boost their retirement income.

The consultation is based on information gathered by the government following its 2017 review of the auto-enrolment regime, which concluded that pension benefit statements are often ineffective as they are too long and complex. The review said that this meant that savers did not understand or engage with the information they receive.

“As individuals progress through employment they are likely to have more than one workplace pension pot and will receive a number of statements which may be inconsistent in length, language and style,” says the report. “That inconsistency presents another potential barrier to engagement and planning because individuals cannot quickly and easily compare multiple statements.”

Although the paper concedes that the pensions industry is continuing to invest in the development of simpler pension statements, it expresses concern that there will be a lack of consistency across providers and schemes without a “sufficiently joined-up” approach.

The consultation puts forward the two-page simpler annual benefit statement that was developed by Ruston Smith, Quiet Room and Eversheds-Sutherland during the 2017 review as an example of best practice. The template, which was subsequently further revised during 2018 and launched at the PLSA Conference in October 2018. The Government would like to know why voluntary adoption of the template has been low up until now.

In the paper the government explains: “We want to understand what the advantages and disadvantages of use of the simpler statement would be for individuals, trustees and scheme providers; whether providers are voluntarily intending to adopt the statement — or a variant — and if so when. If not, we want to understand what the barriers to doing so are.”

The paper also praises the work carried out this year by the ABI and PLSA to support adoption of simpler statements through their cross-industry steering group on simpler annual statements.

The consultation also discusses whether or not a regulatory approach may be needed and, if so, how that could be framed to drive greater standardisation of the length, format, and content of statements. “As part of this we want to explore what costs may be incurred by providers and others on adopting any new approach,” says the paper.

The paper has also called upon the pension industry to explore the concept of a “statement season” that could support engagement through raising awareness about pension saving and retirement.

It added: “We want to drive this thinking further and as part of this consultation we are inviting views to explore whether, for example, the Swedish ‘orange envelope’ approach to high impact visibility and consistency when mailing statements, and a specific statement season during which statements are sent out, can support awareness of the importance of workplace pension saving at national and individual level and support the normalisation of pension saving.

Responding to Opperman’s warning, Hargreaves Lansdown’s head of policy Tom McPhail, said that the company would prefer to see a lighter touch from the government over the introduction of simpler statements.

“Our preference would be for guidance rather than regulation, as that would leave room for individual firms to experiment and improve customer engagement, as well as building the statements in their other communication activity,” he said.

“We’re interested to look at the idea of a ‘pension statement season’. Eighty-five per cent of Hargreaves Lansdown pension customers log into their accounts every year, showing engagement does work, but we also know most of them don’t open their annual statements we’re required to send them.”

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