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Simpler annual statement – law at last

  • United Kingdom
  • Pensions


What’s happening: an overview

From 1 October 2022, DC schemes used for auto-enrolment will need to provide a simpler two page annual statement to members. Regulations and final statutory guidance have now been issued setting out how this requirement will work.

Currently, most DC trustees are required to provide members with an annual benefit statement which summarises their savings in the scheme and provides an illustration of the benefits that they could get if they purchased an annuity on retirement.  In 2017, a review of auto-enrolment concluded these statements were often too long and complex and members might not understand or engage with the information.

Following this, an industry group including Eversheds Sutherland developed a prototype simpler annual statement to show how the essential information required could be provided in an accessible format on two pages.  Earlier this year, the Government consulted on requiring DC schemes used for auto-enrolment to use a similar statement, following a basic template set out in statutory guidance - this two page annual statement is now being brought into law. 

What schemes need to do – the detail

The existing requirements to provide an annual benefit statement and the detailed content will remain unchanged.  The information that the statement needs to cover includes:

  • the contributions credited to the member during the year
  • the value of the member’s rights at a specified date
  • signposts to various information on websites including costs and charges information from the chair’s statement and, where relevant, the scheme’s latest climate change report
  • an illustration of the amount of pension the member would be likely to receive on retirement if an annuity was purchased for them
  • a variety of caveats in relation to the assumptions made for the purposes of the illustration

Under the new Regulations, where a scheme is used for auto-enrolment and the benefits are DC, additional requirements in relation to the length and format of the statement will need to be complied with.

Where the new provisions apply, an annual statement will need to be no longer than one double-sided sheet of A4 paper.  Where a scheme issues statements in a digital format, the statutory guidance says that they can continue to do so but the statements will still need to be no longer than two sides of A4.  There are exceptions to this requirement where the member requests a different format for accessibility reasons – for example, where they have a visual impairment.  

What will the simpler annual statement look like?

Not only must in-scope schemes ensure that their annual statements are the required length, they will also need to follow a template set out in the statutory guidance.  This is because an important policy objective of the simpler annual statement is to ensure consistency and help members more easily compare benefits across different schemes.  Statements will need to be divided into the same five sections:

  • Member and scheme details – this includes the member’s anticipated date of retirement and the period covered by the statement.
  • How much money the member has - this should provide key information about contributions over the year and how much has been saved to date, and must be presented in a way that allows the member to easily see what has happened over the year.  In relation to costs and charges, the legal requirement is to signpost members to information elsewhere, however, the statutory guidance says: “Where trustees… do not provide costs and charges information in their simpler annual benefit statements, they should include text that explains that costs and charges have been deducted but are unavailable, and that information regarding costs and charges for their particular scheme is available via the [information signposted to in this section].”
  • How much money the member could have on retirement - this should provide the member with an illustration of how much their pension could be worth at their planned retirement date.  Any caveats or explanations of assumptions used should be in simple, jargon free language.
  • How the member could save more money – this section is intended to provide members with a prompt to “think about their retirement income and retirement lifestyle as a whole, including their expectations of income from a State Pension or from other sources, and what they could do to give themselves more money for their retirement…”.  As it does not reflect a statutory requirement, trustees have more flexibility around what they can include here and the guidance sets out the kind of things they can consider. 
  • Find out more – this gives contact details and how to get more information.

Trustees will have flexibility around branding and colour but this should “not obscure the flow of information” and the statement must be easily readable and accessible.

If the trustees want to send members additional information to supplement the information in the statement, such information will need to be in a separate document and the statement must be the first document (after any covering letter) provided.

Action points for trustees

Trustees of in-scope schemes need to consider what these changes will mean for the statements that they send their members from 1 October 2022. 

The intended commencement of the new provisions has been delayed by 6 months to allow trustees time to ensure the “accuracy and quality” of their statements.   You may be wondering why they need this time if the statutory guidance sets out a template.  The template does not set out all of the wording that is needed to comply with statutory requirements and trustees will need to use considerable thought and ingenuity to ensure all the required information fits into two sides of A4 in a manner that is simple and easy to read.

The simpler annual statement is a real chance to improve member engagement but – as is often the case – writing something in short, simple language can take a long time to get right.  To ensure that members get the most out of them, trustees need to start designing their revised statements sooner rather than later.