Pensions Minister Guy Opperman has unveiled plans which will see pension providers required to give much simpler, clearer information to people saving for retirement.
Providers would be expected to provide scheme members with no more than a two-sided sheet of information to be included in their annual statements.
The new rules come amid growing concern that there remains a lack of understanding around pensions and people may be put off from saving because of complex wording and unclear information.
Kay Ingram, public policy director at LEBC Group, said simpler statements, coupled with the Pensions Dashboard, will help to build confidence among savers but said greater help and encouragement is required to increase pension saving levels.
Ingram said: “A statement on its own is unlikely to be sufficient in addressing the savings gap between the auto-enrolment contribution of 8% of band earnings and that needed to provide a moderate standard of living in retirement. Evidence shows that annual reviews – the financial equivalent of a medical check-up – help people feel more confident about their retirement and to be better off by age 65 by over £47,700, more than those who do not take advice.”
Ingram said many savers are aware they are not saving enough for a comfortable retirement, but are unsure how to access the help they need. LEBC has seen a 15% rise in the number of scheme members having an annual check-up with advisers and a surge in the number of employers wishing to offer this service to staff.
Ingram said: “We would ask the Minister to go further and make employers, trade unions and the public aware of the tax-free allowance already available to provide workplace advice to pension scheme members. The Conservative Government legislated to allow employers to fund workplace advice on pensions and other benefits, with up to £500 per employee per year being a tax-free benefit in the hands of the employee, and an offsetable trading expense for the business.
“Those employers who use this allowance to facilitate workplace advice receive much more value from their auto enrolment contributions. Where this is not funded by the employer, individuals can ask to use salary exchange to fund advice, cutting the cost by between 32% and 47%, depending on their income tax band.
“LEBC welcomes the Government’s focus, but believes promoting workplace advice, which couples technology with access to a human adviser, is the best way for Government to address the advice and savings gap for future generations.”
Tom Selby, senior analyst at AJ Bell, welcomed the Government’s proposals but believes the Government must do more to recognise its role in building a simpler pensions framework for savers.
Selby commented: “Improving engagement is the next big retirement policy challenge following the successful introduction of automatic enrolment.
“Making sure the information people receive on their pension is useful, simple and readable is vital to improving understanding, so the DWP’s ‘simpler statements’ initiative is a step in the right direction on that front.
“Complexity is the enemy of good communication, whether during the saving phase or when someone is drawing an income from their retirement pot. Ensuring all communication requirements are as straightforward as they can possibly be and consistent across private pensions as well as auto-enrolment schemes should now be a priority for Government, regulators and pension providers.”
However, Selby said the government must also acknowledge the role it has played in creating “mind-bending complexity” in the pensions system.
Selby said: “From the old state pension to the tapered annual allowance, the lifetime allowance and the money purchase annual allowance, there are countless examples of unwelcome and unnecessarily complicated rules created by the Government.
“Although some of these only affect a small proportion of savers, they need to be explained to everyone. As the wider pensions industry strives to make life simpler for savers, the government should also consider its role in ensuring people feel confident engaging with their retirement pot.”
