Regulating is like finding the right notch on your belt: go too tight and you can’t breathe; go too loose and it all falls down. In November, the Department of Work and Pensions (DWP) consulted on simplifying annual benefit statements. On top of two proposed regulatory amendments, it sought the industry’s preliminary views on: ‘how the use of simpler and more consistent annual pension benefit statements across the pensions industry through greater standardisation of structure, design and content could help improve engagement with pensions.’
‘Simpler’ suggests looser regulations, but the DWP are considering tightening regulations to make statements simpler. How’s this?
They believe providers litter statements with technicalities and disclaimers to cover their backs. The Confederation of British Industry acknowledges that providers have been “afraid to use layman’s terms as this might lead to non-compliance with the Regulator or Financial Conduct Authority (FCA)”. Anyone who has had to produce a Chair’s Statement can relate to this fear.
The proposals may be voluntary, at least to start with, but the DWP are disappointed at the numbers adopting the simple Defined Contribution (DC) benefit statement template launched in October 2018. That template may become compulsory. Alternatively, statements might need to meet a set of design principles, or meet detailed, specified ‘descriptors’.
In any case, the key information will be provided in no more than two A4 pages. The disclaimers, technicalities, and compliance statements will either be bumf stuffed in the envelope or shifted online.
A shorter statement containing only the fundamentals should increase engagement. Those other details are like Terms and Conditions; they’re important but will be increasingly ignored. Over time, regulators may become troubled by people not reading them. Providers may not be covered by disclaimers the Courts know their customers don’t see. Details may creep slowly back onto the statement.
Achieving ‘consistency’ requires tightening the belt; giving providers fewer choices. Consistency of presentation and message is desirable as it takes less conscious effort for people to follow. Once you understand one, you understand them all. Consider your bank statement. When was the last time you needed to check whether an amount was a debit, credit, or balance? You’ve understood how to read the table for years. However, the DWP also recognises the value of personalised communications. They are tailored to be more relevant and accessible for the target audience. This is often at odds with the aim to be consistent. Two different providers’ ideas for a personalised statement for the same individual could be markedly different. One size fits all, but is usually baggy.
One way to square this is to prescribe how providers can tailor their statements. The FCA did this with ‘retirement risk warnings’, but that is not an engagement success story so far.
If the DWP is too prescriptive here, innovation and creativity will be
stifled, which is counterproductive to increasing engagement with
pensions. We may start to hear about unintended consequences.
But right now, judging by current levels of engagement, perhaps the
belt is too loose. People are certainly looking the other way.
By Gareth Stears, Pension Technical Consultant, Aries Insight