The pension industry has provided clients with the detail we feel they need to understand their arrangements but their eyes glaze over when they see the volume of material and the concepts.
The tone and language of pension literature are now much closer to how ordinary people speak and think and there is less jargon, due to providers doing consumer research rather than assuming they know what is best.
But the sheer volume of material is daunting, largely caused by a belief that comprehensive information is needed to satisfy regulatory requirements. Nest’s work, particularly with its phrase-book and golden rules on communications, will set new standards. At the ABI’s excellent conference recently, there was much talk about improving employee engagement with pensions and the need for brevity was mentioned several times.
All this is positive but there is a bigger problem. Customers struggle with our words but despair at our numbers. The volume of figures, mostly required by regulation, is daunting and they keep changing in the wrong direction.
Investment returns below the 7 per cent a year standard midrate assumption are partly responsible for reducing projections but use of fund-specific growth rates has reduced assumed returns for many investments and, in future, annual statutory money-purchase illustrations must allow for future “life-styling” of investments. The FSA also proposes reduced maximum growth assumptions, to a level which recent PricewaterhouseCooper research confirms is very cautious. We may also see inflation-adjusted FSA projections becoming standard.
Then there is the annuity rate assumption. This changes yearly with long-term interest rates and these have fallen dramatically, down by 0.8 per cent this year alone. We also have regular changes to mortality assumptions, with the move to unisex annuity rates further reducing rates for males.
Those who read their annual statements must be demoralised to see their projected pensions have fallen by, say, 15 per cent yet again, despite investments appearing to have performed satisfactorily.
The changes made and proposed are designed to give a more realistic picture of pension prospects but the result of them all is just customer confusion. My plea is that we find a basis everyone can accept and stick with it. Customers will hopefully then understand if their projected pensions are significantly different from previous years it is because something has changed, not simply because we have tinkered with the calculations again. If we do not achieve that, we may win on the words but the numbers will wreck all the good work.
Ian Naismith is head of pensions market development at Scottish Widows