Govt launches simpler annual benefit statement consultation

The government has launched a consultation on the regulations to underpin simpler annual benefit statement requirements, which will see key information, such as the size of the saver's pension pot and a forecast for their retirement, highlighted in simple terms.

The proposed changes for defined contribution (DC) schemes are expected to come into effect in April 2022, whilst the consultation will be open to responses until 29 June 2021.

As previously confirmed, the proposals will place an initial focus on savings from automatic enrolment (AE), with a view to later improving simplicity across all schemes.

They will also show members how much money they have in their pension and what has been saved in the statement year, how much money they could have when they retire, and what they could do to give themselves more money at retirement.

However, displaying information on charges was not included in the proposals.

The consultation seeks views on the draft regulations and accompanying statutory guidance, including the illustrative statement template, following which the government will mandate the approach to simpler statements for DC pension schemes used for AE.

The DWP highlighted the announcement as demonstration of the government's ongoing commitment to encourage savers to build up their pension pots by ensuring they can easily see vital information in a simple format.

Commenting on the launch, Pensions Minister, Guy Opperman, said: "It’s clear the status quo is not working, with savers left puzzled by the complex, sprawling, jargon-filled statements commonly used by the pensions industry.

“Simpler statements will set a new standard for how pension companies communicate with their members.

“With more people saving for their retirement than ever before thanks to the success of automatic enrolment, it’s vital they can understand what’s going on with their hard earned money and actively plan for their future."

Smart Pension director of policy, Darren Philp, described the proposals as a "positive step" in simplifying pension communications and helping people understand their pensions.

"Pensions communications are too often jargon-led and too detailed, and this initiative, which pares back information to what's necessary should make it easier for pension savers," he continued.

"This is an important initiative and, along with the pension dashboards, has the potential to pave the way for increasing understanding and engagement."

However, LEBC public policy director, Kay Ingram, warned that simpler statements on their own were "unlikely to be sufficient" in addressing the savings gap between the AE contribution of 8 per cent of band earnings and that needed to provide a moderate standard of living in retirement.

“We would ask the minister to go further and make employers, trade unions and the public aware of the tax-free allowance already available to provide workplace advice to pension scheme members," she stated.

"The Conservative government legislated to allow employers to fund workplace advice on pensions and other benefits, with up to £500 per employee per year being a tax-free benefit in the hands of the employee, and an offsetable trading expense for the business.

“Those employers who use this allowance to facilitate workplace advice receive much more value from their AE contributions. Our regular surveys of member satisfaction show respondents who take part in workplace advice are highly satisfied with their scheme.

Ambitions for the simpler annual benefits statement have been around for some time, with the government confirming plans to legislate on simpler statements in 2019, and announcing plans to consult on the exact regulations earlier this year.

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