Employees who have opted out of their pension may not have done so if their employer had taken the time to explain their saving options more thoroughly, according to research launched at a conference yesterday.
The study by research consultancy Ignition House, discussed at length at the 2018 Pensions and Lifetime Savings Association (PLSA) conference in Liverpool, also highlighted that two in five (42 per cent) people did not know how much was in their defined contribution scheme, and a quarter (26 per cent) did not know how much they were paying in.
Janette Weir, director of Ignition House and co-author of the research, said there seemed to be a lack of understanding among people about the details of their employer’s pension schemes.
“It became clear to us that [workers who opted out] were making decisions very quickly – with very little input from their employer,” Weir said. “There was no evidence that any employer was encouraging them to join. There was very little interaction, and it was often just a leaflet or a booklet given to them.”
She added workplace pensions were not explained to workers when they joined companies, and workers were often so overloaded with new things the “path of least resistance for them is to just say ‘no’”.
Also speaking at the event, Tim Sharp, the TUC’s policy officer for pensions, said he was concerned about who was explaining pensions to workers.
“People get pension statements, but many employers typically outsource their pensions to another provider so it’s not their responsibility to talk about it,” Sharp said. “[But the provider also] says it’s not their responsibility to talk about it.”
He added that unions were trying to help, but there was still a “big gap in understanding what they’re getting at the end of the day”.
Weir went on to say she was “consistently disappointed” by the levels of disengagement with annual pensions statements, while employees who attempt to read their statements do not understand them.
“The annual statement is currently a missed opportunity for companies to communicate properly with their members,” Weir said. “Worse than that, members taking part in the research told us that their statement is actually contributing to their confusion, making them feel stupid and leading to apathy.”
Meanwhile, the Simpler Annual Statement, launched yesterday at the PLSA conference, will aim to provide simple, clear and personalised information on an individual’s retirement savings.
The statement – which was developed by Ruston Smith, co-chair of the Department for Work and Pensions’ 2017 Automatic Enrolment Review Advisory Board and chair of the Tesco Pension Fund, alongside experts with the pension industry – illustrates how much money someone has saved into their pension scheme, the amount their employer has contributed, the tax relief they have benefited from and the total amount in the scheme. It can be provided online or on paper, for employed and self-employed people.
“We have a responsibility and the ability to help our members achieve the best outcome they can in retirement,” Smith said. “By working collaboratively together, and making statements and other communications we send them simpler, more readable and consistent across the industry is an important step in our journey to engage with them.”
Ignition House tested the Simpler Annual Statement and found the two-page document was “much clearer and easier to understand” than many forms of communication pension schemes currently use. More than half (54 per cent) of people surveyed said they would be more likely to read this statement than their current pension report.
This April, the minimum auto-enrolment contribution rates rose from 2 per cent to 5 per cent, with the proportion employers are obligated to contribute increasing from 1 per cent to 2 per cent. In April 2019, the contribution rate will increase to 8 per cent, with the employer minimum contribution rising to 3 per cent.