THE Government has just finished its consultation on the introduction of simpler, standardised annual pension statements. I applaud its aims of helping people understand and engage with their pensions.
My response to the consultation supports the simple two-page statement, showing each customer’s pension value, how much they have paid into it, how much has come from their employer and the Government, what charges they pay and how much their pension may be worth in future (using standard assumptions).
This is a vital first step in making pensions more user-friendly.
Standardised, simpler statements need to be mandatory for all providers: Standardisation would enable PensionWise or other guidance and advice to work more effectively for consumers, and it is important that all pension providers, not just workplace schemes, are required to produce the same standard statements for people’s pensions.
Ruston Smith, QuietRoom and Eversheds have developed an excellent simpler statement, which I believe should be made compulsory, rather than just relying on voluntary adoption.
Over the years, I have witnessed many approaches which left customers baffled and bewildered, because providers keep using old-fashioned nomenclature or jargon-based descriptors, which are unfamiliar to ordinary individuals. A classic example of this problem was annuity sales.
Some providers see standardisation as a threat: Voluntarism usually means the best providers act, while the worst operators drag their heels. Many providers are resisting standardisation, preferring to stick to their own terminology, which of course is more convenient and less costly for them.
Others, especially with closed books or weaker finances, see standardisation as a cost, with no benefits for them – it will not bring new business. Customers will either just stay with them, or may realise they are in outdated, expensive products and transfer away.
Reliable standard statements need accurate data – so data reconciliation and cleansing are urgent: It is an open secret in the pensions industry that many pension records are error-ridden, but the extent of the problem has been hidden. Data correction exercises and investment in digital integration and common data standards are essential so that individuals can rely on the figures they see in standardised statements and the Pensions Dashboard.
Failure to audit and validate pension data has been damaging to customers. For example, belated data reconciliations have left some pensioners suddenly seeing pensions cut.
Personalisation could mean sending statements for each person’s birthday: I suggest providers might consider sending statements to coincide with the week or month of each customer’s birthday. Perhaps a brightly coloured envelope with a card which might wish them ‘many happy returns’ – alluding to the power of investment returns!
Providers might also consider consumer-friendly ideas such as a birthday ‘prize draw’ for customers to encourage them to open their statements, or lottery prizes and rewards if they consider contributing extra.
Clearer charges disclosure is vital but ‘market impact’ of transaction costs may be step too far: Customers need to know what they are paying for their pensions, in pounds and pence not just percentages of the fund. This would show how much they are paying to the pension provider, administrators or managers. This transparency is vital, but I am not convinced transaction costs should include estimated ‘market impact’.
It is questionable whether calculating market impacts is a valuable or cost-effective addition to disclosure requirements. Assessing whether an individual trade actually influenced price movements, given the numbers of trades occurring at any time, is imprecise and unreliable.
A national public information campaign can encourage people to study their simple statement: The legacy of impenetrable, dense, opaque statements will mean few people readily engage with their pension information. A nationwide marketing and PR effort could prompt people into opening, reviewing and thinking about their new, much easier-to-read pension information.
Mandating the use of these new statements is a radical new approach to help consumers. I hope it will be adopted quickly.
Baroness Ros Altmann is a Tory peer and former pensions minister.