Ruston Smith: Value matters, but show me the charges

The research - led by the former chair of the Pensions and Lifetime Savings Association Ruston Smith and carried out by Ignition House - was commissioned to address one of the big unanswered questions in the development of simpler statements, whether and how to display costs and charges.

The Department for Work and Pensions (DWP) government published the government's response to its consultation on draft regulations and statutory guidance for simpler annual benefit statements today (20 October) - confirming the new rules would come into force in October 2022.

Despite this, there is currently there is no requirement to include the consistent disclosure of the costs and charges that pension savers pay to their provider for running their pension scheme and , so far, there has been no agreed approach about whether this information should be shown and the best way to do it on annual pension statements across all trust and contract based schemes.

To tackle the subject head on, Smith's cross-industry research initiative asked savers what they wanted and expected to see, and importantly how they would like it presented.

The conclusions were clear:

• Members are more interested in the value of their pension savings than the charges they pay
• The majority of members weren't aware that they were paying charges but, equally, they were not particularly surprised to see them
• Members want pension providers and schemes to show and explain the charges they pay simply and consistently on all the annual pension statements they receive - which they say will build trust
• If providers and schemes couldn't provide individual members charges, members would think they were untrustworthy - transparency leads to trust

The method and content of the research was agreed by The Pensions Regulator, the Department for Work and Pensions (DWP), the Financial Conduct Authority and industry representatives to make sure it was carried out independently and robustly.

Smith said the conclusions of the research have been passed to the DWP as they consider how to use and apply the findings.

He said: "Not surprisingly, it's the value of members' savings at retirement that matters most - the money in their retirement pot. 

"But members also want to see the costs that are charged and taken out of their savings on all their annual pension statements - presented in a consistent, clear and simple way, in pounds and pence."

He added: "This research asked the industry's customers how they want the charges they actually pay to be shown on all the annual pension statements they receive.  Listening to pension savers, the industry's customers, is critical in delivering what works best for them.

"There's no current requirement to show the amount that each member pays, in charges, consistently on all trust and contract based annual pension statements.  This research provides conclusive evidence that members expect to see those charges on their pension statements, but also tells us how they want them expressed and presented."

The research was supported by Aon, Barnett Waddingham, Lane Clark & Peacock (LCP), Hymans Robertson and Willis Towers Watson.

Commenting on the findings, Aon senior partner and head of defined contribution (DC) consulting Ben Roe said: "We believe this is an important initiative that we are happy to support. There are some significant findings and it again highlights how as an industry we need to keep things simple to improve individuals' confidence and engagement with retirement savings."

Barnett Waddingham partner Martin Willis added: "The results of the research are insightful, demonstrating that members understand the concept of value over cost, and equally the potential for faith and trust in the industry to be lost through either not disclosing costs or failing to explain how they add value. 

"Overall, we welcome these findings and support the consistent disclosure of charges in benefit statements and beyond into online tools and dashboards."

Association of Consulting Actuaries chair and Hymans Robertson partner Patrick Bloomfield agreed: "This independent research is both important and encouraging. It's right for savers to know the charges they're paying and it's a huge relief that most savers care more about value than cost.

"Pensions are complicated and helping people understand what value really means isn't as easy as it first sounds. The industry needs to rise to this challenge and give clear information about charges, in the context of the value being delivered for savers. This is another important step in educating savers about their financial planning for their later lives."

LCP partner Stephen Budge said: "The research by Ignition House is really insightful and again highlights the importance of initiatives such as this to improve engagement with members. It's great to support these industry developments to both standardise communications to members making it easier to read and understand but also to add to the hugely important drive for greater cost transparency to continue to improve confidence in pensions."

Willis Towers Watson co-head of DC consulting Jayesh Patel added: "We firmly believe that pension communications should be clear, transparent, jargon free and, most importantly, engaging for each individual member.  We are very pleased to support this research, it clearly highlights that further industry action is needed to help members understand their retirement savings and the charges they are paying."