UK - Statutory money purchase illustrations will cause shock and confusion and drive up scheme costs, experts claim.
And they warned firms the government’s new regulation would not be just a one-off increase in communication costs.
Buck Consultants points out that SMPIs will be an ongoing admin and cost burden for firms, which will have to explain changes in assumptions to their employees.
Technical manager Kevin LeGrand explained that with SMPIs, after the initial shock – where members will see how small their pension fund is likely to be – would come confusion.
He said many people did not understand how pension schemes worked and SMPIs would make this lack of knowledge more transparent – a failing that would have to be addressed by employers.
He said: “People are not educated or equipped to make those decisions so it falls on scheme providers – to an unfair extent perhaps – to explain to people what is actually happening and what the meaning of all these things are, inevitably increasing employers’ costs.”
LeGrand stressed that it was up to firms to educate individuals and teach them how to look at SMPIs every year and decide if they were on target for a comfortable retirement.
B&CE Benefit Schemes deputy chief executive John Jory, though, believes the task to educate scheme members could be greater than previously envisaged.
Jory warned that any communication must be appropriate to members so they could relate to what was being said.
But he said that even though many schemes would send booklets out explaining the SMPIs rules and provide telephone helplines, members would still be confused.
Jory said: “Members are going to be confused because the picture changes every year depending on economic and actuarial conditions.
“It will probably take two or three years for members to understand or to have a better idea of the factors that will affect what their pension fund will eventually be.”
*SMPI legislation requires DC schemes to provide a “real projection” of retirement income in today’s prices. These statements must be provided in annual benefit statements.
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