The DWP’s consultation on simpler annual benefit statements closed at the end of June. Lisa Webster looks at the proposals and questions whether more joined up thinking between regulators is required
Pension statements can be confusing. We currently have a myriad of rules covering the information pension providers must give to their scheme members on an annual basis, as well as at certain trigger events.
The Department for Work and Pensions (DWP) stipulates rules for occupational pensions, and the Financial Conduct Authority (FCA) does the same for personal pensions.
However, there is not inconsiderable crossover, for example when we look at workplace pensions which are often group personal pensions. We also have the Financial Reporting Council requirements for Statutory Money Purchase Illustrations (SMPIs) to take into account.
Transparency is key to help people engage with their pensions, so any proposal to simplify statements and promote engagement is welcome. The DWP’s intentions are sound in this respect.
The consultation sets out the draft regulations and illustration template.
Annual statements are to be no more than two pages long and set out information in sections in an easy-to-understand format. There is also a section on “What you can do to give yourself more money for your retirement” where it is suggested information could be provided on improving outcomes by increasing contributions or delaying retirement, along with signposting to Money Helper (the new brand name from the Money and Pension Service). All good so far.
It is proposed that these new regulations will come into effect from 6 April 2022 – not a lengthy time scale for providers to get things in order.
At this stage, they will only be required for members of qualifying schemes which in this context are defined “as those under which all the benefits which may be payable are money purchase benefits which are used for automatic enrolment.”
The regulations go on to state: “Members of qualifying schemes to whom the regulation applies are defined to include those who are in the accumulation stage, but not those who are drawing down benefits.”
This leaves questions as to the status of scheme members who have left employment so are no longer contributing into the scheme, and those who have simply opted out. Do the regulations still apply? The answer to that is open to interpretation and different providers may come to different conclusions.
There will also be members who hold more than one pension arrangement with a provider. One may be part of a qualifying scheme, while the other may not. It could well be the same pension scheme, with separate arrangements underneath it.
It is possible that both arrangements could have started as workplace arrangements – maybe one before the advent of auto enrolment, and the newer one since.
The rules could apply differently to each arrangement, so the member gets different types of statements for two pension arrangements which the member views as the same type of pension. This may add to the member’s confusion rather than simplifying things.
Of course, it may be that the provider in this situation choses to apply the new templates to all their defined contribution pensions, although they are not compelled to do so.
However, wouldn’t it be better to adopt a more joined-up approach and to make similar changes to all defined contribution pension statements at the same time? Instead of treating qualifying workplace pensions separately from arrangements that are not captured under that description, we believe changes to disclosure should be introduced for all types of pensions at the same time and in the same way.
Members do not necessarily recognise they have different types of defined contribution pensions. Ideally, uncrystallised members of all pension schemes should receive one annual statement from each scheme they belong to, and this should be in the same format regardless of scheme type.
Instead of the DWP making changes now to only some workplace pensions, and with the FCA likely to make changes to personal pensions at a later date – wouldn’t it be better for them to work together to have a consistent approach across all schemes, and introduced at the same time rather than piecemeal?
Another idea floated in the consultation, but not for imminent implementation, is the concept of a “statement season”, where all pension providers have to issue their annual statements in a specified time frame (possibly three months) each year. Whilst this may present some logistical issues for providers initially so needs a longer lead in time to implementation, this is an idea we would happily support.
If all defined contribution pension schemes issued the same style simplified statement at the same time of year it could make pensions significantly easier for the general public to understand and greatly aid engagement. Something we would all like to see.
Lisa Webster is senior technical consultant at AJ Bell