In November 2019, the DWP published a consultation on simplifying annual benefit statements for qualifying defined contribution (DC) workplace pension schemes.
The consultation has since closed, and the Government has published its response. It aimed to gather feedback on four main areas, discussed below, to improve engagement with members and support retirement planning.
Consistency and simplicity in design of benefit statements across providers
Across the industry, there were mixed responses to the proposals about simplifying the design of benefit statements. The Government wants providers to use a two-page template statement.
Some of the respondents, however, have said that they already have their own shortened statements, developed after (potentially expensive) research and user-testing, which are longer than two pages.
While many respondents agreed with the design principles and descriptors set out in the consultation, some also expressed concerns about their prescriptiveness. Questions remain about the proposed template and whether it’s suitable and doesn’t impede future personalisation and innovation.
Despite the lack of consensus, the Government believes that a jargon-free statement template is the right approach. Due to the lack of voluntary adoption of the two-page statement, the DWP will consult later in the year on a mandatory approach to simpler statement templates.
Clearly displaying costs and charges in pounds and pence on statements
On the matter of costs and charges, responses were again mixed. The Government wants to show costs and charges in pounds and pence, on the benefit statement itself.
Few respondents disagreed with this proposal in principle, but questions were raised about whether including this extra information conflicts with the aim of shortening and simplifying statements. Other respondents said that poorly presented information may confuse members and even put them off saving for their pensions.
Currently, legislation requires relevant schemes to publish information on costs and charges on a publicly available website. The Government believes that this remains appropriate and proposes that annual statements should include a line on costs and charges, signposting to the more detailed assessment available online. Benefit statements should also signpost to information on the scheme’s investment strategy.
Encouraging members to open their statements
The Government made several proposals in the consultation to encourage people to open their benefit statements. These include a ‘statement season’ when all providers would send out their statements, and using coloured envelopes to mark the contents as benefit statements.
Concerns about the potential for fraudulent behaviour were raised over the use of specifically-coloured envelopes, and there was no consensus among respondents on this point. The Government has therefore decided not to take this proposal forward at the moment.
The idea of a statement season created more positive interest among respondents. However, some potential barriers were identified too, such as the operational challenges of producing statements across all schemes in a condensed timeframe.
A peak period each year created by a statement season could also negatively affect customer service during that time.
Some concerns were also raised about it inhibiting personalisation in communications, as schemes could no longer offer members the option to receive their statements at their preferred time.
The Government concluded that a mandatory statement season provides an opportunity to promote conversation about and engagement with pensions and is beneficial overall. So it will consult further regarding a mandatory approach for timing and provision of an annual written benefit statement.
Clarify ownership and alignment of the assumptions used to calculate illustrations on statements across providers
Finally, there was a consensus among respondents that the illustration assumptions proposed in the consultation were apt, and the DWP has confirmed that it will continue to work to identify the most appropriate ownership of these assumptions.
Capita comment
The consultation response makes it clear that the Government sees simpler and consistent annual benefit statements as key to engaging members with their retirement, an objective that all in the industry should support. The Government has taken on board some of the industry’s feedback and dropped some of its more contentious proposals. Despite some mixed views, the DWP will move ahead with introducing mandatory uptake of a shorter, two-page statement for DC schemes, and a common statement season across the industry.
Further consultation is expected before these changes are introduced but trustees should be aware of the proposals and be ready to engage their advisors and administrators to ensure that their schemes are ready to comply as more details become available.