Go on, be honest, as a seasoned pensions professional have you pulled together all your pension statements in the last year and considered whether you are on track to have the retirement you realistically dream about? Probably not, and I’m no different….although I do have a spreadsheet.
But we have an expectation that busy everyday people gather all their statements that they’ve received over the last year, make sense of them, and make informed choices. Or at least, that’s our aspiration.
Supporting Personal Ownership of Retirement Savings
In the 2017 Automatic Enrolment Review, the DWP proposed an objective to support individuals to have a greater sense of personal ownership of their retirement savings.
But, how easy do we make it for everyone? Well, we provide:
+ a statement of members’ estimated annual income from defined benefit schemes if you’re lucky enough to continue to contribute towards one, and issue a statement when people leave, and
+ an annual statement of a member’s defined contribution savings
But with an expectation that, on average, we’ll have 11 employers in our working life, and perhaps as many providers, everything will be all over the place. And then of course, according to Zoopla, over a lifetime we’ll move house an average of 8 times, so will we really let our previous providers or employers know that we’ve moved? Well, maybe at some point.
And not only do people have little time but many find financial information difficult to understand.
For example, 1 in 5 UK adults don’t understand their bank statements, which just shows ‘money in’, ‘money out’ and ‘the balance’.
So, you see the challenge. Not only are our retirement income and savings information in many different places, but when we try to make sense of our statements, they’re all very different: different words, a fair bit of jargon, different numbers in different places on different statements, and with numbers based on different assumptions.
Annual Statements: A Missed Opportunity
So it’s tough to make sense of the information we get, even if we’re really keen. And that’s why, in the Automatic Enrolment Review consultation last year, the Annual Statement was described by many as the ‘missed opportunity’.
Working with Vince Franklin and Mark Scantlebury from communication consultants Quietroom, and with Karen Mumgaard from Eversheds Sutherland providing valuable legal direction, we decided to ignore the regulation and produce a short and simple annual statement with only the information that mattered most to members; with no jargon.
An early version of the Simpler Annual Statement, which was further developed to make it legally compliant, was included in the DWP’s Automatic Enrolment 2017 Review Report which was published last December. Since then we’ve further developed it with industry and it’s just going through some qualitative and quantitative user testing led by Ignition House. The current version, which will inevitably change, is shown in the illustration, with an explanation of the ‘what’ but particularly the ‘why’.
The output from the user testing will lead to further changes to the Simpler Annual Statement which we hope to launch later this year as a proposed approach for best practice.
Industry Collaboration: Making the Difference
The real difference that we could make as an industry, without the need for additional regulation, is to adopt the Simpler Annual Statement, but, naturally, with schemes and providers using their individual branding, colour, illustrations and links to further communication.
Gregg McClymont, Director of Policy and External Affairs at The People’s Pension, said “whilst a world class pension system should deliver efficient outcomes without demanding individual engagement, for those that do wish to engage, it should be easy and satisfying. The People’s Pension believes that it’s firmly in members’ interests that annual statements, across all pension providers, use the same assumptions and provide the same information so that members have a better chance to understand what savings they have and where.”
Romi Savova of Pension Bee says that “by giving members consistency of the essential information they need, we can help them to make sense of the numbers on their statements”.
That’s the clear message coming out of the user testing that Ignition House are conducting. Janette Weir, from Ignition House, said: “Members have consistently given very positive feedback on the new statement, saying it simple, jargon free, and presents the key information they need to know about their pension in a very visually appealing way. At just two pages long, they can read and fully digest the information in less than 5 minutes, which is often a world away from their current experience”.
Future Vision: Future Work
The Simpler Annual Statement is expected to be launched later this year following which, as we look for wider adoption, industry associations will work with schemes and providers to consider its implementation and identify any further improvements that can be made.
Nathan Long from Hargreaves Lansdown says ‘”there’s no doubt that shedding the gobbledygook from annual statements will make them easier for pension savers to understand. We should get behind this initiative of providing a more simple way of explaining pensions consistently as an industry, compared to the current yawn-inducing illustrations. The longer term vision should be online personalised engagement at teachable moments.”
With the work by the PLSA on Retirement Income Targets, to help members think about how much they need to save, the Simpler Annual Statement making it easier to understand both how much they’ve saved and how much they might have at retirement, the proposed Pension Dashboard will ultimately bring all members’ information together in one place, in a simple and consistent way.
So, all this work is complementary to contribute towards supporting individuals to have a greater sense of personal ownership of their retirement savings. One step at a time, we’re making life simpler for savers.
By Ruston Smith – Independent non-Executive Chairman