Workplace pension schemes not always keeping savers informed
A number of workplace pension schemes are failing to provide their members with clear enough information about the choices open to them on retirement.
A survey of 97 trust-based defined contribution pension schemes carried out by the Pensions Regulator has found that almost one in three (30 per cent) breached the rules on offering members clear information on how they should use their money to buy an annuity.
A further 6 per cent of the schemes were deemed to require substantial changes to their literature and processes.
The review concentrated on the information that the schemes gave employees preceding their retirement, including its compliance with the regulations, its clarity and the way it highlights the open market option.
Under workplace pension rules, members of a scheme should be granted the opportunity – the open market option – to shop around for the best annuity deal rather than simply to accept that offered by whichever provider is running and managing the defined contribution scheme on behalf of their employer.
According to the Pensions Regulator, the review showed “that there is a lot of good practice in the industry now, and that this is found across a range of scheme types and sizes” but also that “the results give some cause for concern as members are not always presented with helpful and timely information as they approach retirement”.
Specifically, of the schemes scrutinised, the review identified 57 per cent that had “some scope for improvement” in their standard of information, 30 per cent that were breaking the law by failing to supply members with information on their options at least six months before retirement, 6 per cent that had problems with their literature, and 2 per cent that omitted to offer the open market option.
The Regulator concluded: “This exposes the members of those schemes to the risk of making uninformed decisions about their retirement income. This could lead to the member receiving a lower level of income than if they had been equipped with clear, straight forward and relevant information.”
There are currently some 4,500 defined contribution schemes operating in the UK, and membership of them is increasing.
With 2.5 million employees already enrolled, it is estimated that another 10 million will be joining such schemes once the government’s new personal accounts savings scheme is introduced in 2012.
The Pensions Regulator is to write to all 4,500 schemes, pointing out the findings of the review and impressing upon trustees the importance of making sure that all pre-retirement literature is open and easy to understand.
June Mulroy, executive director of operations at the Pensions Regulator, said: “Compliance with the legislative requirements is important as a minimum standard but we expect to see adoption of good practice as the norm. This will help members to make the right decisions at retirement, which we recognise can make a significant difference to the income they receive.”
It is thought that the size of annuity can vary by as much as 20 per cent depending on the provider, but only 23 per cent of employees included in the review exercised the option to shop around.