Why an overhaul of annual statements is the first step towards better disclosure of information

More than three years on, the 2017 review of automatic enrolment is beginning to have an impact on the sector.

The Department for Work and Pensions (DWP) remains committed to the main proposals in the medium to long term: removing the lower qualifying earnings band and lowering the age threshold to 18 but we expect these in a future Pensions Bill. They seem to have been justifiably delayed by the fallout from the pandemic. However, the Government has chosen to force the pace on the main proposal from the review’s engagement strand, the simplified annual statement.

This simplified annual statement is a standardised annual statement. It covers two pages and is designed to show the information required by law to be in a statement in a way that enables comparison between different schemes.

End the use of jargon

Between the end of 2017 and autumn last year, the Pensions Minister Guy Opperman and the DWP tried to encourage the industry to adopt the simplified statement, with the former expressing his disapproval at ‘jargon-filled, confusing statements’.

While a few providers have adopted the new document, most have stuck with their original statement. More than a year ago, the DWP consulted on the way forward and published its response earlier this year, which served to underline how the department has lost patience and is now looking to mandate the statement, meaning that providers will be compelled to introduce it.

So how has it come to this? Providers have three main reasons for not adopting the statement. Firstly, statement overhaul is regarded as being too expensive. One of the major life houses completed a full revision of its statement recently at considerable cost. It’s hard to make a case for putting the statement up on bricks again so soon after completing a major revision of product documentation.

Secondly, some companies have expressed concern over the quality of the simplified statement. Innovation is increasingly a feature of our industry and there’s an increasing move towards online and video communication of core pensions information and there are some who believe that the way they do things now has advantages over the simplified statement.

The introduction of dashboards

Lastly, there are pensions dashboards, which are likely now to go live from 2023 and will allow people to see their pensions entitlements together on one online portal. With high levels of internet access now throughout the UK population, it seems probable that dashboards will replace both paper and electronic statements as the main way that people get information about their pensions.

Dashboards have the potential to completely reshape the way that people interact with their pensions and may render current approaches to communications with members redundant. An obvious question to ask would be ‘why do you need a paper or electronic statement if you can just look up the relevant information online with a few key strokes?’ with the follow up of ‘when did you last look at a paper bank statement?’ What really needs to be considered with the introduction of dashboards is a full review of all the information we, as an industry, share with pension savers, not just annual statements, and when that information is released. Instead of sending an individual annual statement, why not point them at a dashboard so they can see all of their pensions in one place?

We’re now waiting for the DWP to bring forward a new consultation paper on the simplified statement and this could in turn be followed by regulations which might mandate them.

This should prompt more debate, not only about the adoption of the statements, but also about the disclosure of pensions information more generally. Hopefully the new consultation could result in improved annual statements becoming a stepping stone to improving the way that the pensions industry communicates with retirement savers as we move into the dashboard age.