Former PLSA Chair Ruston Smith sees more than a few parallels between how people plan for a short break and for the longest one of all – the industry needs to step up and help…
I don’t know about you, but when we start thinking about our next holiday there are some key questions we always ask ourselves – typically:
- When should we go?
- Where should we go?
- How much will it cost?
Like when they think of their holidays, people tend to think about retirement stuff in a really simple way. Although they may express themselves slightly differently, the key questions I’ve found they ask include:
- What retirement income and savings do I already have?
- How much income and savings will I need?
- How much more should I save (and can I afford)?
- What difference will those extra savings make to me?
And, of course, within these questions they ask themselves ‘what’s the earliest I’ll be able to retire?’.
Long gone are the days when people retired at 50 with an unreduced final salary pension income – when retirement meant retirement, with them skipping out of the door singing Madonna’s top hit ‘Holiday’!
Today, there are more choices and – inevitably since most savings now go into what we call ‘defined contribution’ – there’s less certainty of the income and savings people will get. Retirement planning has therefore never been more important.
Keeping it simple – keeping it personal
When I think about the questions people ask when they’re considering their retirement savings, I just wonder whether we make it easy enough for them. There’s:
- No consistent way to help them think about how much they’ll need – and therefore will need to save;
- No consistency between all the statements they get about their existing savings – words, numbers, assumptions; and
- Nowhere to see all their retirement savings and income in one place – the information is with their schemes and providers.
I think I’ve just answered the question of whether we make it easy enough – which was the conclusion from the consultation that was held as part of the DWP’s 2017 Automatic Enrolment Review.
We’ve successfully supported people to save for retirement – but not to make the right choices with the right simple information.
For example, the Annual Pension Statement that’s sent by all DC schemes and providers was considered to be a ‘missed opportunity’. While the industry spends loads of time, money and effort to produce statements, relatively few are opened – never mind read, understood and properly considered.
As we look to the future, with automatic enrolment at the heart of retirement savings, information will become more fragmented – and therefore it’ll be critical to provide information in a simple, consistent and accessible way for savers. This is particularly the case when, on average, people are likely to have around 11 employers during their lifetime, with 25% expected to have 14 – so there will be more savings with different providers than ever before.
Martin Freeman from Smart Pension believes that “we need to make it as easy as possible for people to understand what they’ve got saved for retirement. Consistency and simplicity are key for this. That means working together as an industry and agreeing a common way of presenting the same fundamental information. It’s easy for us to focus on our own schemes so much that we lose sight of the member’s perspective.”
The opportunity – working together
With Brexit sucking out every bit of parliamentary time, Guy Opperman threw down the challenge to our industry to work collaboratively together to find solutions that helped savers without the need to change regulation.
There are some key initiatives that are being developed to help those saving for retirement which, in the main part, won’t need regulation if we can work collaboratively and in an agile way.
The three initiatives are:
- Hitting the Target – helping people think about the cost of living in retirement and how much they need to save
- Simpler Annual Statement – a short, simple (no jargon) statement – where ultimately all annual statements would use the same words and numbers based on the same assumptions
- Pensions Dashboard – all my retirement income and savings shown simply and consistently ‘in one place’.
These three initiatives would make a big difference to helping people make sense of their own retirement income and savings – and would contribute towards the DWP’s objective of supporting individuals to have a greater sense of personal ownership of their retirement savings.
Margaret Snowdon, Chair of PASA, says that “a Simpler Annual Statement for all is a crucial first step in normalising pension saving. We owe it to people to make it as easy as possible to see and appreciate their pensions wealth. Complex statements sent at different times and of variable quality do nothing to restore faith in our industry. The work needed for a Simpler Annual Statement is also a step on the road to a Pensions Dashboard, so well worth it.”
Simpler Annual Statement
Having listened to the overwhelmingly consistent feedback from the DWP’s consultation, as part of the review, the communication consultants Quietroom and lawyers Eversheds Sutherland were asked to help me develop a short and simple statement that focused not on what the regulation said, but on the information that mattered most to those saving for retirement.
We worked with the PLSA, ABI and others to develop this statement before then consulting the DWP, TPR and FCA on what more would be needed to make it compliant with current regulation and guidance.
The surprising answer was ‘very little’ more was needed, so with that encouragement we developed it further to include the additional information to make it compliant – which I have to say did make it more wordy than we would have liked, but then again it needed to meet the requirements currently in place.
The Simpler Annual Statement was included in Annex 5 of the Automatic Enrolment 2017 Review Report.
So where are we now?
We’ve continued to improve the Simpler Annual Statement and it’s just going through the latter stages of quantitative and qualitative user testing that’s being done by Ignition House.
The aim is to launch the Simpler Annual Statement later this year.
The vision and the hope
The vision is to deliver a Simpler Annual Statement that will include the same words and numbers – and, in due course, base the numbers on the same assumptions (this aspect of the project is progressing in parallel).
Inevitably, it’s important that schemes and providers continue to use their own illustrations, branding and their unique approach; but the hope is that, in due course, all statements will include this basic information in the same place – providing people with some consistency so that they can compare, add up and make sense of their own information.
Emma Douglas, Head of DC at LGIM, says that “the Simpler Annual Statement has the potential to be a real breakthrough in helping members to understand the income they can expect in retirement. L&G are keen to introduce benefit statements in the new format, with industry, to make statements simpler, clearer and more consistent for members.”
Will the statement be perfect? Will it meet everyone’s needs? Probably not – what does? But, by working together and making this first step towards providing simpler and more consistent information, we’ll keep learning, striving to continuously improve for the many people who we support in planning and saving for life’s longest holiday!