The DWP has confirmed new user-friendly, two-page pension benefit statements will become available for members of defined contribution pension schemes in October 2022, in an attempt to help people better understand the state of their pension savings. Reformed two-page annual statements for automatic enrolment schemes will show how much money the member has in their pension plan and what has been saved in the statement year, how much money they could have when they retire and what they could do to give themselves more money at retirement.
In November 2019, the Government consulted on how annual statements could be changed and made simpler, shorter and more consistent in order to support better engagement with people’s workplace pensions.
Minister for Pensions and Financial Inclusion Guy Opperman MP said: “With more people saving for their retirement – thanks to the tremendous success of Automatic Enrolment – it’s vital that they can also clearly understand how their pensions work.
“This marks a new era of accessible statements for savers, empowering people to plan for the retirement they want.”
Mr Opperman also stated he believes that “short, simple, statements will usher in a new standard for how schemes communicate with their members – greatly improving people’s understanding and engagement with their pensions”.
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“They are a tool that can start an engagement journey through the variety of other tools or sources of information that exist, or which can provide simple, straightforward, reassurance that things are on track.”
Pensions Dashboards have been pinpointed as a way of potentially changing how people engage with their private pensions, by allowing Britons to see the overall value of all their various pension entitlements, including the state pension, online and in a single place.
The Pensions Dashboard aims to make it easier for people to find out how much retirement savings they have in both state and private pensions. It is set to go live in 2023, with shorter, less complicated annual statements also hoping to remove some of the confusion surrounding pension planning.
However, there are concerns that changes to the normal minimum pension age (NMPA) could cause additional confusion and undermine the benefits of Pensions Dashboards.
Changes to the NMPA were proposed in July and would come into effect in 2028, lifting the minimum age for withdrawing private pensions from 55 up to 57. However, it does not appear to be that straightforward.
Some large pension schemes have age 55 written into their rules as the minimum age for withdrawal, rather than the normal minimum pension age. That means if the NMPA increases, some people will still be able to access some of their pension at age 55.
If people are able to access some of their pensions at 55, with the rest not being available until age 57, it is not clear how this would be displayed on their Pensions Dashboard, which are built on the premise of people having just one retirement age.
Tom Selby, head of retirement policy at AJ Bell, commented: “The Government deserves credit for attempting to simplify the information people receive about their pensions.
“Far too much paper is wasted sending savers reams of documents about their pensions that they simply cannot engage with.
“While some of this information might be useful in theory, the reality is it will often end up in the nearest bin. When it comes to retirement communications, less is often more.
“Slimming down workplace pensions communications to a two-sided piece of A4 paper should improve the chances of members taking an interest in their retirement pot. And while clearly the future is digital, there are many people for whom a paper statement will be the key form of communication they receive about their pension.
“Pensions Dashboards are the other key part of the DWP’s retirement engagement strategy. Once fully introduced, these hubs should allow people to view all of their retirement pots in one place online.
“Over time Dashboards could include key information on things like costs and charges, providing an entire generation with the tools they need to get the most from their hard-earned savings.”
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