DC schemes to send two-page ‘simpler statements’ in 2022

The idea for simpler statements, two-page documents highlighting basic and understandable information such as the size of a member’s workplace savings pot and a forecast for their retirement, was first touted by an industry group in response to the government’s review of auto-enrolment in 2017.

A collaborative effort by Ruston Smith of the Tesco Pension Fund, Vincent Franklin and Mark Scantlebury, from communication consultants Quietroom, and Karen Mumgaard and Francois Barker, from law firm Eversheds Sutherland, the idea was endorsed by the Financial Conduct Authority that same year.

As reported at the time by FTAdviser, research carried out by Ignition House found that “the two-page document was clearer and easier to understand for consumers and that it could be read and understood in two minutes”.

A statement on its own is unlikely to be sufficient in addressing the savings gap between the auto-enrolment contribution of 8 per cent of band earnings and that needed to provide a moderate standard of living in retirement

Kay Ingram, LEBC

A number of workplace pension providers got on board in 2019, with Smart Pension and PensionBee in particular supporting the proposal in response to a consultation into boosting industry uptake in November of that year.

Smart Pension and PensionBee backed a call for legislation if take-up from schemes remained sluggish, though Royal London at the time opposed the move on the grounds that standardising the format would be expensive — it estimated it could cost £3.6m to implement — and could risk important information being left out.

Simpler statements from April 2022

Now, however, the government has opted to press ahead with regulations that will first target auto-enrolment savings before expanding to cover all types of schemes.

According to a consultation launched on Monday, statements will be required to show, “in easy-to-understand terms”, how much money an individual has in their pension and what has been saved in that statement year.

They will also be required to provide an estimate of how much money the member could have when they retire, and suggestions for what they could do to give themselves more money at retirement.

The new statements, which must consist of no more than two sides of A4 paper, will be available to members in the accumulation stage but not those drawing down benefits, and will not include members of hybrid pension schemes.

The regulations contain a transitional measure stating that they do not apply “to information concerning a member’s money purchase benefits that has already been given before April 6 2022”, per the consultation document.

The consultation will run until June 29. Alongside it, the DWP has established a working group to investigate the concept of a “statement season”, in which “schemes would be required to send their statements during a certain point in the year, and whether this could improve public conversations about retirement saving”, a statement read.

The group’s first meeting took place on Monday.

Announcing the consultation, Guy Opperman, minister for pensions and financial inclusion, 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.”

He continued: “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.”

Measures welcomed, but could go further

Barker, who is head of pensions at Eversheds Sutherland and one of those involved in the original work on the two-page statements proposal, welcomed the announcement.

“I’m delighted that the work which the Eversheds Sutherland pensions team did with others in 2018 to develop the simpler annual benefit statement is now being consulted on as a legislative requirement,” he said. 

The prescribed length and the draft templates published by DWP “will help to ensure that members receive information on their defined contribution savings that is accessible, clear and comparable across schemes”, Barker continued.

“In turn, [this] will help them to see what they’ve already saved and how they could save more for their retirement. These were all part of the reason for creating the simpler annual benefit statements in the first place."

Kay Ingram, public policy director at national financial planning group LEBC, was similarly pleased. She said that simpler statements coupled with the pensions dashboards “will help pension savers feel more confident in their retirement planning”.

“However, our experience of advising members of pension schemes is that they need help and encouragement to increase their pension savings to the level required if they are to be confident about their future,” she cautioned.  

“A statement on its own is unlikely to be sufficient in addressing the savings gap between the auto-enrolment contribution of 8 per cent of band earnings and that needed to provide a moderate standard of living in retirement.

"Recent research by actuaries LCP shows that those in the private sector aged 35 to 50 are at greatest risk of missing out on a comfortable retirement due to underfunding of their pension.”

As reported previously by Pensions Expert, pension providers will not have to include costs and charges in their new simplified annual statements, an idea present in the first template but abandoned by the DWP last October.

At the time, the government stated that it would continue to require schemes to signpost members to information on charges, but it would not require them to include costs in pounds and pence in the statement. 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.

However, Romi Savova, chief executive of PensionBee, is “disappointed to see the DWP has taken a meek approach to cost disclosure” in its new consultation.

She said: “Straightforward information on performance and charges should go hand in hand if we are to improve consumer engagement and trust in the pensions industry.”