Pension statements to get simpler in Govt overhaul
It is consulting on the exact plans this week, with the idea that people will engage more with pension saving if they can easily see the important information about the size of their pot in a simpler format.
The two-page document will highlight in clear terms the size of a saver’s current pension pot, and how much has been saved over the previous year. It will also make clear how much money the saver could have when they retire if they continue saving at that rate, and what they could do in order to boost the size of their eventual pot.
The focus will initially be on automatic enrolment schemes, with the intention of rolling out simple statements across all other pension schemes later on.
Guy Opperman, the minister for pensions, said it was clear that the current system was not working, with savers left befuddled by the complex, jargon-filled statements typically used by pensions firms.
He added: “Simpler statements will set a new standard for how pension companies communicate with their members. With more people saving for their retirement than ever before thanks to the success of automatic enrolment, it’s vital they can understand what’s going on with their hard earned money and actively plan for their future.”
Engaging with our pensions
Tom Selby, senior analyst at AJ Bell, pointed out that automatic enrolment had been an enormous success in getting millions of people to start setting money aside for retirement for the first time, but warned that the next challenge was to get them to engage with what sort of pension pot those contributions would deliver and whether it would be enough to meet their expectations.
He added: “In most cases, particularly where contributions are set at the minimum level of 8%, they will not.”
There have recently been warnings that many of us, particularly parents, should think carefully about whether we can afford to hike our pension contributions in order to provide a more comfortable retirement.
Where can I get help?
Kay Ingram, public policy director at planning group LEBC, argued that a statement on its own is unlikely to be sufficient in encouraging people to save more than the minimum, noting that annual reviews ‒ which work rather like a financial version of a medical check-up ‒ help people feel more confident about their retirement.
She continued: “We believe many savers are perfectly aware that they are not saving enough to enjoy a comfortable retirement but don’t know how to access the help they need.”