Something big is missing from workplace annual pension statements – a percentage return for the year.
Annual pension statements do show what your fund was worth 12 months ago and what it is worth today but for the vast majority of statements going out to the millions of UK workers in group pensions, the yearly piece of paper will say nothing more useful than that.
If I had £20,000 a year ago and I now have £24,000, I know that overall my fund has gone up by 20 per cent (although my statement will not actually say that) but I do not have the slightest idea how well my total pension portfolio has performed, which is the only thing I am really bothered about.
This is because the statement reflects the total fund value, including the contributions that I have made over the last year.
This is a shame because employee engagement is one of the big buzz phrases in the workplace advice arena. Providers, advisers and employers often complain that feckless employees do not really appreciate the money that is poured into their pension scheme, leaving some to wonder whether these contributions are money well spent.
The annual pension statement should be the big moment for the provider, adviser and employer to connect with the scheme member, yet the opportunity to hammer home what a great job has been done on the employee’s behalf is being missed.
In the years since the trough in the stockmarket, pension statements should have been showing investors exactly how good equities can be.
By showing the return on a portfolio in big bold letters, many employees would have now been getting used to annual returns well into double figures after four years of a bull market.
That would have really got the message over that equities are the place to be in the long run, making savings rates with banks and building societies look the barely inflation-beating vehicles they really are.
The phrase “I have just opened my pension statement and my fund returned 18 per cent last year” should have been on the lips of thousands of employees in recent times, but it wasn’t.
Getting a single figure for performance does present its challenges, not least through having to make sense of each of the monthly contributions into the scheme and also working out the total performance of a portfolio where an individual’s assets are spread across a range of different asset classes.
But there are some providers that have the technological wherewithal to offer a percentage return on a portfolio.
Fidelity says its workplace offering will do that at the present and a relatively new company, called PensionDCisions has developed a technological solution that addresses these issues.
The downside to showing the portfolio return for the year is obviously the fact that volatility in stockmarkets would be far more accentuated if a global performance figure were displayed.
Under the current system, the contributions that the scheme member makes over the year go to mask any negative returns, a state of affairs that I am sure those providers with big duff default funds are happy with.
But adopting technology to allow annual portfolio returns to be shown would also have the effect of driving standards in the industry, something that good advisers have nothing to fear from.
Imagine if every provider had an accurate figure of what different advisers had achieved for their clients and their clients’ workforces on an annual basis. Providers would be in a position to publish what the average return on pension investments was for different sectors of the workforce, and then those advisers whose arrangements had beaten that would be able to market themselves accordingly. And crucially, employers would get a clearer picture of whether the portfolios that their employees were investing in, with guidance from their adviser, were performing at, above or below the benchmark for their type of workforce.
If we want to engage employees with their workplace pensions and at the same time persuade them of the merits of equity investing then giving a tangible figure describing how their fund has done has to be a starting point.
Until there is a clear figure for how well the employee’s fund has done, they will be justified in throwing statements straight in the bin.
John Greenwood is editor of Corporate Adviser