As the DWP’s consultation on simpler annual benefit statements closes, Holly Roach looks at the industry’s response.
The Department for Work and Pensions' (DWP's) consultation on simpler annual benefit statements, which closed to feedback last month, garnered a range of mostly positive responses.
The consultation set out proposals for the adoption and launch of simpler annual benefit statements and requested views on the principle, adoption, and delivery of them for workplace pensions.
Unveiled in November, the consultation document included proposals which would require the simpler statements to be presented on no more than two pages, and for the statements to work alongside innovative communication tools and technology, including the pensions dashboard.
Commenting on the closing of the consultation, pensions and financial inclusion minister Guy Opperman said: "Simpler statements are the way ahead. I'm glad and encouraged to see the pensions industry has taken this consultation seriously.
"For too long savers have had to try to make sense of wordy, jargon-filled, confusing pension statements. This confuses people. People either don't read them, can't understand them or lose interest in what is one of the most important investments anybody will make."
A common theme in responses seen by PP was that the simpler annual benefit statement template should be promoted as an example of good practice - and a number of industry figures supported the simpler annual statement template and the standardised approach proposed.
The Pensions and Lifetime Savings Association's (PLSA) response supported shorter statements and said it is "promoting the two-page simpler annual statement template as an example of good practice". It added: "Pension schemes are enthusiastic about providing simpler and more consistent information to people about their retirement savings."
Its response also noted its support for the approach to the standardised assumptions.
The Association of Consulting Actuaries (ACA) called for full legislative standardisation of annual benefit statements alongside support for the pensions dashboard.
The trade body's response revealed it welcomed "the opportunity presented by the DWP's consultation to radically re-design statutory annual benefit statements as part of a wider industry drive to encourage members to think about their retirement and the outcome they want at an earlier stage in their working lives, aided also by the pensions dashboard initiative".
It also noted: "The combination of a standardised simple benefit statement with a dashboard that shows multiple pension policies in one place will help millions of people view their pension savings in a clear light for the first time."
ACA defined contribution (DC) committee chairman Hugh Nolan said: "We are also strongly in favour of this communication delivering more value to members by focusing on what members really need to know and providing them with the tools to enable them to take action to improve their retirement outcomes."
Baroness Ros Altmann agreed standardised statements were an essential ingredient for future success of the pensions dashboard project.
"Some pension providers may not have their legacy pension information ready to upload electronically to a dashboard any time soon, so requiring all pension schemes, not just workplace providers, to produce standardised annual statements which replicate the dashboard requirements, will help customers and their advisers more easily see a complete picture of all their pensions."
Altmann agreed a simpler, standard statement "would be a huge step forward". She said: "Standardisation would enable guidance and advice to work more effectively for consumers, and it is important that all pension providers, not just workplace schemes are required to produce the same standard statements for people's pensions."
The DWP's consultation also set out proposals on adoption of the statements through voluntary or mandatory approaches and explored the potential costs of transitioning to any new approach.
At the time, the DWP said: "It is not clear that voluntary adoption of principles, descriptors or the statement can deliver sufficient consistency, nor where ownership of them should lie to ensure adoption is encouraged and that they are subject to ongoing development where necessary to reflect evolving best practice or changing regulatory requirements."
However, the PLSA revealed many of its members "like the template as an engagement tool, and have said they would like to adopt it on a voluntary basis".
However, Altmann argued the government "should force pension firms to send simpler, standardised annual statements", suggesting they "need to be mandatory for all providers".
She added: "Some providers see standardisation as a threat. Voluntarism usually means the best providers act, while the worst operators drag their heels", noting those that may be resisting standardisation are "preferring to stick to their own terminology, which of course is more convenient and less costly for them".
Altmann concluded: "We must not just leave it to firms to volunteer to [adopt the simpler statements], because the worst ones won't!"
Meanwhile, PLSA head of DC, master trusts and lifetime savings Lizzy Holliday said: "The simpler annual statement guidelines should balance the need for flexibility with a level of guidance that ensures savers get consistent information from scheme to scheme.
"We remain unconvinced that a compulsory template for annual benefit statements is the way to do this."
The industry body's response also said its member schemes would like to "retain the ability to adapt the statement to its own membership; to align with other scheme engagement strategies based on research with their members; incorporate wider pension benefits and total reward packages; and include more interactive online tools".
It also noted: "It is quite likely that the pensions dashboard will one day overtake the annual benefit statement as the primary source of retirement saving information for savers."
Holliday added: "Going forward the dashboard promises to be the place for members to find collated information, presented in a consistent way. We believe this should be the focus of greater prescription and consistency of presentation, rather than paper based communications.
"That way scheme communications can be more tailored to their savers' needs, with the dashboard providing an overview in one place."
Despite the majority issuing positive feedback, there was also criticism of the DWP's proposals. Royal London criticised the government's plans for simpler benefit statements, and rejected the proposal for a standardised approach, in favour of a principle-based one.
It suggested that adopting a standardised, shortened format would "lead to important information being left out", and "also omits key calls to action such as updating beneficiaries". It also said: "More needs to be done to signpost members to where they can go for more information."
Royal London Intermediary chief executive Isobel Langton said: "While we certainly support the aim to improve how we communicate with customers, we feel that taking an industry-wide standardised approach is not the way to go.
"Shoehorning the statement into two pages means important information on costs, charges and investment growth could be omitted. We also want the flexibility to include important messages such as the value of taking financial advice. Adopting a principles-based approach will enable us to do this."
However, Altmann argued: "The DWP should not bow to pressure for principles-based or descriptive approaches - these have failed consumers in the past.
"Over the years, I have witnessed many examples of ‘principles-based' approaches which left customers baffled and bewildered, because providers keep using old-fashioned jargon-based descriptors, which are unfamiliar to ordinary individuals.
"Standardisation and simplicity are needed in practice, not just in theory, so providers cannot obfuscate and continue to confuse consumers with non-standard wording and information."
Royal London's response also noted: "Given that the pensions dashboard will soon become the main place people go to see all their pension information it argues against incurring huge costs re-designing paper statements that are already being seen as effective."
The simplified two-page annual statement was first unveiled at the Pensions and Lifetime Savings Association's 2018 annual conference in a bid to provide a best practice template for the industry.
The first iteration of the best-practice document sat on just two sides of A4 paper and included the information that matters most to people saving for retirement - signposting members to a separate website should they wish to view more detailed legal and cost information.
It was tested by Ignition House, which conducted independent research involving over 70 in-depth interviews and a survey of 1,000 scheme members. The research overwhelmingly found that the simpler annual statement is much clearer and easier to understand and that it can be read and understood in two minutes - which was considered a huge positive.
Those researched said that they were much more likely to read the simpler annual statement and consider it alongside their other statements to work out what they have got.
The statement received backing from pensions minister Guy Opperman, The Pensions Regulator, PLSA, the Association of British Insurers, the Financial Conduct Authority and a large number of pension providers - including Legal & General, Aviva, Hargreaves Lansdown, Scottish Widows, Smart Pension, PensionBee, Nest and The People's Pension, some of whom have since integrated it into their processes.
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