The UK government has unveiled a plan for simpler, shorter workplace pension statements – ideally covering just one sheet of paper – reasoning that people will then read them and be encouraged to save more.
Pensions minister Guy Opperman said: “Pension statements are too long, too wordy, full of jargon and confuse savers. People don’t read them, or if they do they can’t make head nor tail of them.”
Simpler statements provided clear information that people would actually understand, he said, adding that this would prompt them to put more money aside.
Launching a consultation to run from today until 20 December, the Department for Work & Pensions (DWP) said it wanted providers to commit to giving savers clear information about their pension prospects – ideally on no more than two sides of A4 paper.
If the industry did not act on the idea, Opperman threatened legislation to make providers do so.
“I want pensions schemes to drive forward real change quickly but, if necessary, I will consider regulation,” he said.
Suggesting ideas to motivate people to open the pension statements posted to them, the department looked to an example in Sweden.
“The success of the ‘orange envelope’ approach used by the Swedish Pension Agency when sending out state pension statements during a short period each year shows how people can be encouraged to engage with the pensions by generating a national conversation about pensions, supporting the social norming of pension saving,” the DWP wrote in the consultation document.
“The Swedish example suggests that having opened their orange envelopes a majority of recipients read their statements,” it said.
Within the proposal, the DWP says it is considering transferring ownership of the assumptions underpinning annual benefit statements from the Financial Reporting Council (FRC) to the DWP.
It proposes using a mixture of statutory guidance and regulation to set out assumptions, and aligning assumptions for the Statutory Money Purchase Illustrations (SMPI) with those set by the Financial Conduct Authority (FCA) for Key Features Illustrations (KFIs) – except where it identified good reasons for taking a different approach.
The department said the FRC had told it for some time that guidance on the SMPIs should not be their responsibility.
“We believe that now is the appropriate time to change ownership of the guidance which underpins the SMPI and seek to move towards greater standardisation in the underlying assumptions,” it said.
PLSA urges flexibility
Lobby group Pensions and Lifetime Savings Association (PLSA) welcomed the idea of simpler statements, but said guidelines would need to be flexible.
“Simpler annual benefit statements, along with the Pensions Dashboard and the PLSA’s new Retirement Living Standards, are a great example of good practice in providing savers with clear and concise information that helps them understand their pension,” said Lizzy Holliday, head of DC, master trusts and lifetime savings at the PLSA.
Pension schemes were keen to give members simpler and more consistent messages in their communications, she said.
“An important principle is that they should be free to tailor their messages for their own member base as well as innovate the means of communication as technology advances.
“The simpler annual statement guidelines must necessarily balance the need for flexibility to allow for this and the need for descriptors that ensure savers get consistent information from scheme to scheme,” Holliday said.