LV= is calling for a change to the way pension providers issue annual statements, writes Philip Brown.
The pension reforms created a new environment that requires consumers to take a much more proactive approach to their retirement income.
More than two years since they were introduced, we are used to hearing how they have brought flexibility and opportunities for consumers.
But as an industry, we must not expect consumers to be able to make the most of these freedoms without giving them the tools to do so.
At LV=, we believe pension providers have a clear responsibility to make it as easy as possible for consumers to take control of their retirement savings.
We believe a simple change to annual statements across all providers will make it easier for both advisers and consumers to easily digest by adding a standardised summary.
Making it simple
Current annual statements act as a nudge to consumers throughout their working life, but they can often lose their impact as they tend to be too long and confusing for consumers to understand.
A standardised one with a comprehensible summary page will show savers simply if their pension pot falls short of what they want and will be easily comparable across pension pots.
We believe the summary page should also include key data on the pension pot, information on what someone might use it for, and examples of how much monthly income it might provide if taken as a guaranteed income or as a flexible income.
The rise of auto-enrolment means more people than ever before are saving for retirement. But people cannot afford to sit back once they have enrolled into their pension scheme and assume their contributions will be enough.
A digestible summary of savings, consistent across providers, will be beneficial for consumers to help them better understand their financial situation.
As an industry, we need to encourage people to regularly assess their retirement savings. People say they expect to need £1,360 a month to live comfortably in retirement, but our recent research found six in 10 people aged 45-54 don’t know how much they have put aside for retirement.
People need to be helped to stay on top of their savings and not put it off until it is too late to make the necessary changes. The earlier someone starts to save, the more achievable it is for them to reach their desired retirement income, but saving for retirement is often trumped by everyday financial demands.
Unless we make pensions more comprehensible and tangible, particularly for younger savers, it will be a struggle to encourage people to get on board with saving more for their retirement.
Advice prompt
The summary would also act as another prompt to get professional help at retirement. With consumers open to more choices, the industry runs the real risk of a mis-buying crisis with consumers making this key financial decision without necessary support.
We believe small changes like a standardised annual summary, that is intuitive for customers, can help by pointing them towards advice and impartial government guidance such as Pension Wise and The Pensions Advisory Service, as we believe taking advice is vital for consumers to make the most of their retirement savings.
The pensions dashboard is already a big step in the right direction as it will enable consumers to better manage their pensions and prepare for retirement, but this will work only if people know it is there.
When it launches in 2019, a signpost to the tool can easily be included in the annual summary. Standardised language across both will make it easier for consumers to take control of their savings.
The new pensions environment requires consumers to be more much proactive than before, taking control of their pension savings much earlier. Yet at present, consumers are not engaging with this market and do not have access to tools that help them.
That’s why we think including a standardised summary sheet with annual pension statements would make it easier for people to know whether they have enough saved, understand their options, and prompt them to take action.
Philip Brown is head of policy at LV=
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