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Simpler annual statements for DC members

  • United Kingdom
  • Pensions

20-05-2021

Under existing legislation, 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 an annuity that they could get on retirement.

In 2019, following work carried out by Eversheds Sutherland as part of an industry group, the Government consulted on how annual statements in schemes used for auto-enrolment could be made simpler, shorter and more consistent.  One option was to require schemes to use a short, standardised template.  The Government is now moving forward with that option and is consulting on draft regulations and statutory guidance.

Under proposed draft regulations, from 6 April 2022, trustees of DC schemes used for auto-enrolment will need to ensure that their annual benefit statements fit on one sheet of A4.  They will also need to have regard to statutory guidance which sets out a basic template for the statement and how it should be completed.

Trustees should start considering now what changes they will need to make and exactly how their new benefit statements will look.

Background to simpler annual statement

The majority of DC members must be provided with an annual statement which shows the amount of contributions credited to them during the year, the total value of their DC account and an illustration of the pension that an annuity might provide on their retirement. They also need to be signposted to information on a website about investments and charges.

In 2017, a review into the success of auto-enrolment concluded these statements were often too long and complex with the result that members might not understand or engage with the information.

In addition, as members are likely to accumulate funds in more than one DC pension during their working lives, statements which are inconsistent in length, language and style don’t help members to engage with them and plan their retirement as they are not easy to compare and pull together into one overall position. 

As a result, an industry group including Eversheds Sutherland drafted a simpler annual statement that schemes could give to their members.  This was followed by a consultation in 2019 on how annual statements could be reformed and made simpler, shorter and more consistent. 

The Government has now issued draft regulations for consultation which will require DC schemes used for auto-enrolment to keep their annual statement to one double-sided sheet of A4 paper alongside draft statutory guidance which sets out a basic template for an annual statement and guidance on how to use it.

The new requirements will come into force on 6 April 2022 and apply to statements issued after that date.  The Government will need to review the position before 6 April 2025 to determine whether the new approach meets its objectives. 

What will the simpler annual statement say?

The proposed basic template is divided into 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.  The information should be presented in a way that enables the member to see and understand at a glance the results of their pension savings activity over the year.  The section should also signpost them to more information about costs, charges and investment and the Government encourages trustees to provide members with additional costs and charges information where possible.

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.  As this will be based on assumptions, there is also guidance on how to explain this to members, including a suggestion that the statement could cross-refer to detail held elsewhere and just signposted to in the statement.

How the member could save more money – this does not reflect a statutory requirement but trustees are “encouraged to provide information… around actions that may enable members to plan for their retirement, including; a) an illustration showing how saving more into their pension pot may generate an increased pension pot at retirement, and b) changing the age at which they plan to retire”.

Find out more – this gives contact details and how to get more information.

The guidance gives trustees flexibility around branding and colour but this should “not obscure the flow of information” and the statement must be easily readable and accessible.

Where other information is sent out to members along with the annual statement, it must be in a separate document and the statement must be the first document (after any covering letter) in any information pack sent to members.

Action points on benefit statements

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

The requirements are intended to apply to statements sent out after 5 April 2022.  So, trustees should understand when their statements are typically sent and accordingly if this means their 2022 or 2023 statement will need to comply with the new requirements.  

The template statement does not prescribe all the wording that should be used. This means that trustees and administrators will have to think hard about how to include everything that’s needed for the statutory disclosure requirements, while using the template and sticking to two sides of A4. 

There is also an emphasis on information needing to be provided in a way that can be easily understood, so existing wording should not be cut and pasted into the new template without considering if it meets this requirement.

Finally, the consultation on the new requirements closes on 29 June so if trustees, sponsors or administrators have any strong views, they should make sure they feed them in to the DWP by then.