The government has abandoned plans to make pension providers include costs and charges in their new simplified annual statements, which could become mandatory for defined contribution schemes in the near future as progress in this area remains slow.
In response to its consultation on simpler annual benefit statements for workplace pensions, published on Monday, the Department for Work and Pensions stated it will continue to require schemes to signpost members to information on charges but will not require them to include costs in pounds and pence.
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 a document.
It added that to do so would lead to longer statements, which defeated the government’s main objective to simplify and shorten the documents.
We hope that in future the DWP will also compel pension providers to present information on costs and charges in order to help members identify what they have paid for their pensions
Romi Savova, Pension Bee
Others were concerned that poorly presented information on charges could confuse members and end up with them concluding that their pension does not represent value for money. There is also the risk that members could opt-out of saving due to confusion over costs.
The DWP stated that its proposal "is to include a line in the simpler annual statement template on costs and charges with a clear signpost to the more detailed assessment of this information elsewhere, which schemes are already required to provide.”
It added: “This is a complex area and we believe that it is important to strike the right balance between greater transparency and providing the information that members need to understand what is happening with their money; enabling those who are more engaged to easily access additional information; and the impact on schemes.”
Consolidator PensionBee called for charges to be displayed in pounds and pence in statements, as the provider includes this information in its simplified statements to customers.
Romi Savova, chief executive of PensionBee, said: “We hope that in future the DWP will also compel pension providers to present information on costs and charges in order to help members identify what they have paid for their pensions, as this is a crucial step towards empowering consumers to compare fees across all of their pots, increasing transparency and competition in the market.”
Statements could become mandatory
While some providers have voluntarily worked to simplify their workplace pension statements, the government has raised concerns that progress remained “too slow” and was not “delivering consistent results”.
Therefore it has decided to consult later this year on a mandatory approach to simpler statement templates for DC schemes, taking its two-page statement template as the starting point in considering the length, content and design.
Simple statements were first suggested by the 2017 auto-enrolment review. They set out to engage members who are confused or deterred from reading their statements by long, complex paper documents. An example statement was developed by industry practitioners and released in October 2018.
The DWP noted that providers had not voluntarily adopted the freely available statement template, adding that the approach by schemes "remains piecemeal and some of the revised statements are still too long".
It stated: “Moreover, the process is driven by the approach of individual providers, so overall statements remain inconsistent.
“Any perspective on engagement and pension statements must recognise that increasingly savers are members of more than one scheme and that variants in statement length, design, language and content may present unhelpful and unnecessary barriers to engagement.”
Meanwhile, the DWP is concerned providers’ statements remain inconsistent because each interprets the meaning of 'simple' in a different way.
Due to there not being any standard length or format, providers are able to decide for themselves what is included in the statement and in how much detail.
This has become an issue as more people have multiple pension pots, and a difference in annual statements will make it hard for savers to understand their pension savings, the government said.
It stated: “We believe that an approach which defines what simple means in terms of the length, format and detail of information to be provided will deliver greater consistency.”
Expansion to other schemes on the horizon
Although the government is only focusing on DC schemes used for auto-enrolment, it plans to look at how simpler statements can be used for all pension schemes.
The government says the principles can be applied to other pension funds, although it noted that it may be more of a challenge for schemes such as defined benefit.
Providers divided on mandatory simpler annual statements
Workplace providers such as Smart Pension and PensionBee are supporting the government’s intention to introduce a standardised annual statement, with calls for legislation if take-up from schemes does not increase.
Tom Selby, senior analyst at AJ Bell, said: “The ‘less-is-more’ approach set out by DWP feels like the right one, and if we can move to a world of greater simplicity and consistency for annual benefit statements that can only be a good thing.
“As the DWP moves forward with these plans, co-operation with regulators – and in particular the Financial Conduct Authority – will be critical in ensuring the new framework is applied consistently by different types of pension scheme.
“This is the right time to put in place a review of all disclosure to all pension consumers, both paper-based and online. It’s important we help people understand what their pensions are worth to them, the value they offer, and, as part of that, what they pay for them.”
This article originally appeared on ftadviser.com
