The DWP are considering how to support an industry initiative to create simpler , more effective pension statements. It has asked people to respond to its consultation.
I and my company – AgeWage – support simpler pension statements and in particular we support the efforts of Ruston Smith , supported by Quietroom, to produce a template for how a single pension statement should look.
This is our response to the DWP’s consultation “Simpler Annual Benefit Statements” (for workplace pensions.
The DWP asks
It is not clear what the “twin ambition” is , there are several ambitions mentioned in the consultation but we have to assume that the DWP want better understanding and engagement with people’s workplace pension saving and we think that simpler statements offer the following three opportunities. They will help us and answer these three questions
- How much money do we have in our pension pot?
- How much money could we have when we retire?
- What can we do to give ourselves more money in retirement?
Question two is not for us to answer- it is targeted at providers not consumers
But while we are here, we can make this comment; those who provide workplace pensions benefit commercially from the distribution the AE rules bring them. They agree to be part of a social enterprise that is for the common good – not just their good.
So it is right that they comply with the ground rules as set out by Government. So the onus is on providers and trustees to integrate simpler statements into their comms programs for their and the greater good.
It is proper to restrict this guidance to qualifying workplace pension schemes. Providers operating outside the AE framework are typically offering their service to and through financial advisors who have the capacity to explain more complex statements and add value through bespoke communications. Let these providers do their own thing, we think the scope is right.
There is a natural bias towards longer statements that comes from a belief that people find statements more interesting than is actually the case and because of the risk aversion of regulators that demands every ambiguity is properly explained. The people who write statements find it hard to be brief and should welcome these statements as achieving what they find it hardest to do – be clear, vivid and real.
Since we have seen very little clarity, vivacity and reality in statements to date, we can’t produce evidence that it works, other than to say that the Smith/Quietroom statement works for us!
Section 21 is pure civil-service bunkum. No one without a degree in government-speak can reasonably make head or tails of what these principles mean and how they will be applied in practice. The over-riding principle that the Government should adopt is the principle of feedback. If people think that the statements are getting the benefits of question one then they should press on, if no tangible benefit emerges, they should think again.
The advantages of a simpler statement it is likely to improve retirement outcomes, save paper and reduce consultancy bills . There are no disadvantages (other than to firms who rely on producing endless iterations of communication materials)
I omit the following questions as for providers and not for the general public. There follows in the consultation document a good section on the design principles followed by the following questions
The design principles are excellent and should help to achieve consistency and simplicity. There is a third principle which is not included which is “transparency”. Transparency allows people to see through to the things that matter , like how much they are paying for the services being offered,
We understand that such transparency was originally envisaged but met such barriers that the inclusion of a section on the statement showing the price or the pension in monetary terms was dropped. We can only speculate on the barriers to inclusion.
Without this transparency, the simplified statement’s impact will be much diminished, it will mean that the statement is considered a marketing document rather than helpful information. Many people will read their first new statement and not read another – because of the exclusion of the price of the pension.
the section on descriptors ( meaning an explanation of what the money is, what it will be and what needs to be done to make there more money, is necessary to explain to the faint-hearted trustee but not to the members. Frankly we do not need to treat people as fools. When you get a shopping bill – you do not need descriptors because the bill is laid out in a way you can understand. Less words, more sense.
Organisations that still provide qualifying workplace pensions are well aware of the regulatory climate they operate in and that a big stick is available to the regulators. We don’t see why organisations should have to adopt this sensible approach but we’d be interested to read Trustee or IGC Chair statements as to why they didn’t. Ultimately this should be regulated by comply or explain.
Costs and charges disclosure
By far the most important section of the consultation deals with the DWP’s intention to require disclosure of costs and charges on benefit statements
We therefore propose to amend the disclosure regulations to require relevant schemes to include member level charges and transaction cost information in pounds and pence on the annual benefit statement.
This is the right thing to do. As mentioned above, presenting people with a list of their shopping but not what they’ve paid for it is a duff kind of till receipt. The same can be said for the presentation of a benefits statement without an item explaining what has been paid for the benefit.
In very simple terms, the presentation of the fund value needs to be complimented with the money spent to get that value.
We hope in time that a better presentation of value for money can be included, one that looks at the rate of return achieved by each saver relative to a proper benchmark (the average return of all savers). We call this the AgeWage score and we will lobby in future for this to be included on benefit statements.
But that is for the future, right now we support the DWP’s intention and have this to say on its questions
We are dealing here with Qualifying workplace pensions, all of which should be able to report on costs and charges; this is what trustees , IGCs and even GAAs have been training to do since 2015. The introduction of the cost and charges templates through CTI makes it much easier for trustees and IGCs to get this information.
We note that many trustees and IGCs are still not properly reporting on the total cost of ownership and hope that this will be remedied in 2020 reports (and that if it isn’t tPR and FCA take proportionate action).
Translating the information available on a macro level- to individual statements, means making individual calculations on costs born by member – part of the business as usual of reporting. We think this a big step forward and will go a long way to achieving the ambitions of the simpler statements.
We don’t think that averaging costs makes much sense, if there is data to support the actual costs being paid, averaging costs over a number of members simply obfuscates, much better people get the costs they pay.
Frankly who get paid out of these costs and charges is of little interest to savers; they are interested in how much is being taken from their pots to pay for the return they get, whether this money goes to the plan manager, the fund manager or the legion of sub-contractors who help invest the money and govern the money is of little moment to the saver. They want to see a total bill (including VAT and everything else).
We have no objection to charges being represented as a % of fund as well as in nominal terms but we think that a pounds shillings and pence statement is most effective and should always be calculated.
We have little to say about assumptions other than that whatever projections are made, they are likely to be taken with a pinch of salt by most savers more than a few years from taking their benefits.
This may seem a perverse statement when we support the aim of the statements helping plan for the future, but we don’t see the projected fund value as the key descriptor for people looking to the future, most people take the value of their plan now as their key descriptor as they know the difficulties with projections.
Most projection engines are a means for actuaries to have conversations which are interesting to them , but to no-one else.
We would like to see any cost/benefit analysis conducted by workplace pension providers and the DWP, published and shared widely.
If there is no benefit arising then we need to understand the point of these statements in the first place as “no benefit arising” would suggest that no kind of statements are getting read. If there is a negative impact of providing simplified statements, that impact and its causes need to be understood and the policy revised (presumably on the basis of the principles mentioned above).
We do not believe that the financial impact of adopting the templates will be substantial. Where there is impact , then it is probably because of deficiencies in reporting (particularly on costs and charges).
We are pleased to see these questions (though baffled by some of the expressions and grammar – especially question a)
The key data items captured on the simplified statements are the items that should be presented on dashboards.
As mentioned above, we think that a better value metric could be achieved and that would require access to contribution histories as well as present fund values. We think that reporting on individual rates of return and benchmark rates of return are vital for people to understand how they have done.
But the data envisaged being incorporated into the simpler statements is enough for now.
We are alarmed by the assumption that benefit statements will in future be opened from envelopes. If this is what is envisaged, we question how interoperable these statements will be with dashboards.
The aim must be to move towards digital statements as a norm, just as digital payslips are becoming a norm. It is hard to imagine a world in future where pension statements arrive in the post and we hope that many of these questions will be redundant soon.
As for statement seasons, perhaps we should be thinking in terms of push and pull , with statements being pushed out at a certain time – perhaps April where they can reference IGC reports.
It would be good if the statements could go out on a push basis aligned to the chair’s statements so that those who are interested enough, can dig deeper. This would be particularly helpful where people are engaging with specific issues such as value and the money paid to get the value.
We are pleased that the consultation is happening but not pleased by the length of time it has taken to respond to it! We need simplified consultations and simplified feedback requests. We need good templates to feed our views back to the DWP and guidance on what is helpful.
That said, the consultation is swimming in the right direction and swimming with the tide.
We urge the Government to urge at all times on the side of greater transparency and to listen to the voice of the consumer first and providers second.