Pensions and financial inclusion minister Guy Opperman has launched a simplified two-page annual statement in a bid to provide a best practice template for the industry.
The simpler annual statement - which has been developed by an industry-wide group including former PLSA chairman Ruston Smith; Quietroom consultants Vincent Franklin and Mark Scantlebury; and Eversheds Sutherland lawyers Karen Mumgaard and Francois Barker - came in response to the government's 2017 review of auto-enrolment (AE) and aims to "junk the jargon" and help people engage with their savings.
The AE review found that, while providers and schemes send out millions of annual pension statements to people who have contributed to retirement savings schemes, less than 14% read and understand them - dubbing this as a "missed opportunity" for the industry.
The best-practice annual paper sits on just two sides of A4 paper and includes the information that matters most to people saving for retirement.
It clearly signposts to other detailed information that can sit separately on a website. This reflects legal requirements and can be adapted by providers using their own branding.
The simpler annual statement was tested by Ignition House, who 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've got.
Launching the statement, Opperman welcomed the initiative and said the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers would now take the development of simpler annual statements forward for use by the wider AE sector - identifying what else is needed to ensure they can be used alongside other initiatives, such as the Financial Conduct Authority's wake-up pack requirements, the pensions dashboard and the PLSA's retirement income targets.
A responsibility to help
Commenting on the group's work to produce the simple annual statement, Quietroom's Vincent Franklin said: "Current annual pensions' statements can lead to member confusion and massive disengagement. Research shows that they can be a waste of time, effort and money for the providers to produce and a confusing turn-off for members. Where communications are a mess, both industry and members can lose out."
Ruston Smith agreed: "It's easy to falsely assume that everyone has the time and ability to read, absorb and make sense of their retirement savings on all the bits of paper the industry send them. But we need to get real. People have limited time and are selective in what they choose to read."
He added: "We have a responsibility and the ability to help our members achieve the best outcome they can in retirement."
Eversheds Sutherland's Barker added: "Complying with the detailed legal requirements in this area can often lead to members receiving a lot of information that they struggle to understand. There is a real art to ensuring legal compliance whilst producing user-friendly member communications."
The statement has received backing from The Pensions Regulator (TPR), PLSA, ABI, the FCA and a large number of pension providers - including Legal & General, Aviva, Hargreaves Lansdown, Scottish Widows, Smart Pension, Pension Bee, NEST and The People's Pension.
Commenting on the launch, TPR chief executive Lesley Titcomb said: "We're pleased to see industry come together to design an approach that meets our regulatory expectations and enables members to see key information about their retirement savings clearly and quickly.
"As more people start to build savings through automatic enrolment it is important that initiatives like this help people understand what they have saved and the importance of future savings to provide an adequate income in retirement. We encourage the trustees of any defined contribution scheme looking to improve its member engagement to take this new format on board as good practice."
FCA acting head of cross-sectoral & funds policy Alex Roy agreed: "The FCA supports measures to make pensions more understandable for consumers, and understands the benefits of a simpler annual pension statement. We are always open to ideas which can deliver better outcomes for users of financial services. As such, we have engaged with the working group during the development of the statement and we're supportive of its aims."
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