The government has proposed rules which will require providers to send savers simpler pension statements, limited to two pages.
According to draft rules published as part of a consultation yesterday (May 17), the government will make it mandatory for providers to issue simpler statements for certain defined contribution pension schemes used as part of auto-enrolment.
The changes are set to come into effect in April 2022 and while only auto-enrolment savings are being focused on for now, the government said it would look to introduce simplicity across all schemes in future.
Under its proposals, the two-page statement will enable savers to see:
- how much money they have in their pension plan 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.
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.”
The government first consulted on how annual workplace benefit statements could be reformed back in 2019.
But in its response in October 2020, it abandoned plans to make pension providers include costs and charges but said it would continue to require schemes to signpost members to information on charges.
The government u-turned on its original proposals after the pensions industry raised concerns that it would be challenging to present this information clearly in a two-page statement - the proposed length for such statements.
The pensions industry has welcomed the latest paper claiming that stripping back the volume and complexity of the information members receive was vital to boosting engagement.
Tom Selby, senior analyst at AJ Bell, said: “Making sure the information people receive on their pension is useful, simple and readable is vital to improving understanding, so the DWP’s ‘simpler statements’ initiative is a step in the right direction on that front.
“Complexity is the enemy of good communication, whether during the saving phase or when someone is drawing an income from their retirement pot.
“Ensuring all communication requirements are as straightforward as they can possibly be and consistent across private pensions as well as auto-enrolment schemes should now be a priority for government, regulators and pension providers.”
Becky O’Connor, head of pensions and savings at Interactive Investor, agreed, saying poor communication around pensions was “a big blocker to people engaging, contributing more and ultimately having a healthier pot when they eventually retire”.
Holly Mackay, chief executive officer of Boring Money, said it was a “step in the right direction”.
She added: “There is no longer any excuse to send out a bland 20 page document full of meaningless, dull gobbledygook. It’s a shame that this is something the government has felt compelled to drive rather than the initiative coming from the providers.”