Simpler annual pension statements (SABS) got a well-needed boost this morning when the DWP launched a consultation into their adoption.
This looks like being just about the latest Government consultation of this parliament and it could be the swan-song for our current pensions minister.
Then again, it could be the presage of his second term as minister – which would be no bad thing. Whether in a majority Government or as part of the coalition, Guy Opperman is the most obvious candidate to take this forward into a future pensions bill (cough cough).
First – commendations.
Well done Ruston Smith for making the statement happen – and for getting a set of standard assumptions into the market.
Well done Quietroom for keeping it simple. This statement could easily have gone the way of statements past but it’s still on two pages and still (mostly) the document we looked at in 2017.
Well done Eversheds Sutherlands for providing the supporting legals that kept the process honest.
Second – recommendations
The key recommendation of the consultation is that the distribution of SABS is through workplace pensions and specifically the workplace pensions used for auto-enrolment.
The Government are in a total pickle about definitions and the best they would best to simplify the scope of the statements to “DC workplace pensions used for auto-enrolment”. I think we all know that DB members don’t get DC statements and that people who have personal pensions (including SIPPs ) have complexity as part of the deal. If they want simple statements – they can consolidate to simplicity.
So I think that simple statements being trialled in workplace pensions is a good thing.
The second most important recommendation is that these SABS just use one basis for assumptions. This will cause all kinds of problems immediately as these assumptions may result in people’s projected pots and pensions going down.
It will also annoy actuarial practices who have great fun (and make much money) justifying a range of assumptions. Simplification can’t come a moment too soon – chapeau to Ruston Smith.
The third most important recommendation is that (for now), these statements don’t tell people how much is coming out of their pensions. This I don’t support.
Here is the frankly feeble paragraph in the consultation which has probably taken a thousand hours of drafting and should take five seconds deleting.
Finally, we are seeking views on the benefits, risks, practicalities and timing of including approximate member-level charges and transaction costs on the annual benefit statement itself, to make it easier for members to identify what they’ve actually paid. Government supports the fundamental principle that as investors in variable return long-term savings products where the effect of costs and charges on members’ savings can be significant, members have a right to the information in a proportionate way.
There is nothing – NOTHING – stopping the line that was in previous versions of the statement – telling us how much we paid for our pension – being put back in.
All the user-testing told Government that this was absolutely what people wanted to see on their statement. The argument that people might take money away if they felt they didn’t get value from its management is bizarre. So what if they do? If people are so energised by seeing that a max of 0.75% of their fund is being spent on costs of running the money and charges from the pension provider, let people find a home for their savings they consider better value for money.
People who have taken the trouble to open the statement, read its contents and taken action about what they read are precisely the kind of people we want more of. To suggest that scammers will use the cost of workplace pensions to save them money with ludicrous alternatives is to underestimate the British public.
Third – expectations of adoption
What are we to make of the progress of this consultation into pensions BAU?
The DWP are not exactly forcing this down the pensions industry’s throat
Achieving change 13.
We would welcome your views on:
a. the advantages/disadvantages of reliance on the voluntary adoption of a simpler statement template; design principles; or descriptors
b. where responsibility for maintaining a template; design principles or descriptors for voluntary use should lie: with government or industry.
c. The advantages/disadvantages of mandating an approach through statutory guidance.
Unless this approach is mandated – we are no further forward. We can already adopt this approach voluntarily.
By stopping short of recommending the mandating of this approach through statutory guidance, the DWP has not moved the cheese.
The expectation , arising from this consultation , is that the DWP either mandate SABS or leaves it to the industry to adopt piecemeal. Having gone to the trouble of identifying the target market for SABS – DC workplace pensions – it seems absurd for us to go through this consultation without making compulsion the expected outcome.
The obvious conclusion to a consultation on simplification is that we will get universal adoption, if we don’t – we simply have what we have today, which is not why we have consultations on the future.
Let’s hope that the only statement in the consultation which talks of action, leads to a swift second round of consultation and early adoption.
Subject to responses, we will work closely with the FCA and others in developing regulation and statutory guidance for consultation. Where we have consulted on assumptions here, we do not propose to do so again as part of the next stage of the consultation
I will be responding with the intent that Government bring this on
I want simpler more engaging statements, have thought SABS the way forward for the past two and a half years and hope that this consultation will deliver conclusive support for mandatory use in the target market at the earliest possible opportunity.