Once an individual has been signed up to a group personal pension, in the vast majority of cases the only ongoing contact between them and the pension provider is through their annual statements.
No-one is going to argue against the fact it can be difficult to get people to read these documents, but have insurers missed a trick by not screaming about the double digit returns many pension clients will have seen over the past four year bull market?
The majority of providers do not give what most people would consider the most basic requirement for an annual statement for an investment product – namely a figure for the product’s return over 12 months. Without this, how can people be expected to learn the benefits of equities over building society savings accounts?
Donna Bradshaw, a financial planning strategist at IFG, believes there is definite room for improvement. She says the majority of pensions statements she sees are at best dull and at worst near impenetrable.
Bradshaw says: “A lot of the paperwork produced by the industry puts people off. They do not understand it and it does not engage them so people just do not read it.”
Many of the failings are basic. Several providers do not separate out how much of the growth of the client’s pension pot is down to new contributions and how much to the actual underlying performance of the funds. They simply say what the pension pot was worth and what it is worth now.
Many providers also still routinely only give the unit prices of the underlying funds at the end of the review period. This means clients have to dig out the previous year’s statements and do the maths themselves to work it out – while this may make sense from the employer’s perspective in years of poor performance, surely this is a huge missed opportunity after the recent boom years.
Add to this the fact that many do not supply comparative data, such as the performance of individual funds against their respective benchmarks, and it is no surprise that over 80 per cent of GPP members without advisers just opt for the default fund choice.
Billy Mackay, head of marketing at Skandia says many of the problems stem from the fact that the majority of corporate pensions money remains invested in old style pensions contracts, such as with-profits or life company managed funds.
“These are effectively closed books. The providers have no intention or vested interest in improving client’s access to information, which would often highlight the poor performance of the funds,” he says.
Many insurers are increasingly realising the value of improved member communications, however, and several are carrying out research to see how they can improve them.
Scottish Widows has in the past come under fire for the lack of accessible data in its statements. In its defence, the insurer says it has improved its statements since introducing a new suite of pension products three months ago.
The new-look statements now include performance data on the underlying funds and factsheets.
Statements and mandatory communications manager Angie Kirkwood admits legacy systems are the main barrier to rolling these out across all of its back book of pensions but says it aims to carry this out next year.
“The aim is to provide enough information for clients to be able to carry out a review of their pensions,” she adds.
Friends Provident has just completed a major project featuring interviews and focus groups.
Head of pensions marketing Jeremy Ward says this focused primarily on member engagement but also looked at how employers can get more from the contributions they put into GPPs, in terms of employee loyalty.
“One of the overriding findings was that members are keen to understand about what levels of benefits they are likely to get and the impact higher contribution levels would have on this,” Ward says.
Friends also found what it describes as a surprising lack of knowledge about the tax relief pension contributions attract. Ward says Friends is looking at redesigning its statements to ensure the tax relief and employer contribution are better highlighted on its statements.
He adds more complex, but desirable, data, such as contribution calculators are already available on its website and it will guide members to its site.
Kirkwood says there is a balance to be found between providing members with sufficient information to review their pensions arrangements and swamping clients.
Alasdair Buchanan, head of group communications at Scottish Life says his firm has been criticised for sending out factsheets on every fund held by a client. But he says while more detailed charting and comparative tools are available on ScotLife’s website, there is empirical evidence to suggest that online has less of an impact when it is not accompanied by hard copy data, regardless of regulatory requirements.
Fidelity provides one of the most comprehensive pension statements in the market, including performance data, the impact of increasing contributions and the impact of charges.
Head of DC business development Julian Webb says Fidelity colour codes all of these details to try and break down the data and make it more accessible.
He adds that Fidelity also provides a range of additional tools online, such as daily pensions valuations.
Richard Jacobs, managing director of Richard Jacobs Pensions & Trustee Services says many providers do now provide valuable online tools but there is a marked difference to the quality of service provided by newer market entrants, such as Skandia and Fidelity, and those with legacy systems, such as Prudential and Norwich Union.
“Companies with legacy systems and products, such as section 32s, just cannot provide valuations online,” he says.
Jacobs notes that despite his best efforts to encourage clients to login to providers’ sites, he estimates less than 5 per cent do.
Providers freely concede that it is a challenge to actually get clients online. Fidelity is set to introduce new systems that will enable it to monitor how many clients log on, how long they spend on the site and which tools they use.
“By monitoring online usage we will be able to use this information to tweak the site to help clients better navigate it,” Webb says.
But some believe purely providing better performance data and contribution calculators do not go far enough.
Graham Mannion, managing director at specialist GPP reporting firm PensionDCisions, says a more sophisticated approach is needed altogether.
“Most interesting is the rate of return across all of the funds held and in order to calculate that you need to take into account the proportion of the portfolio held in those funds, new contributions and any switches,” he says.
He believes that this data would also better enable trustees and employee benefits consultants to decide whether fewer or more fund choices are appropriate for the scheme and bring asset allocation and risk appetite into focus.
This data, particularly when extracted from all members of a large scheme, can be used to create different bespoke benchmarks across different risk profiles and see how these profiles are performing at a member level.
There is support for this. Webb says Fidelity’s latest member research found that the information rated most valuable in its statements was the ‘personal rate of return’ calculation it includes.
“It can be difficult to work this out. Our calculation allows for the impact of fees, the timing of contributions, the proportion invested in different funds and overall performance over 12 months,” he says.
While any firm striving to provide more useful information to members should be lauded, the problem of engaging them remains.
Jacobs says that despite the providers best efforts, until financial education is given higher priority many of these innovations will still end up in the bin.
Focus – No online forecasts from the DWP
Richard Jacob
Managing director, Pensions & Trustee Services
“The DWP says it is unable to provide calculations for anyone retiring after 2010.”
Corporate advisers’ lives have been made even more difficult over the last month after it emerged that the Department for Work and Pensions pension forecasting service has gone down.
The DWP says it is unable to provide calculations for anyone retiring after 2010 and is unlikely to be able to do so until next Autumn as it updates its systems to incorporate change being brought in by the Pensions Act 2007.
Richard Jacobs, managing director of Richard Jacobs Pensions & Trustee Services says this is impeding all advisers carrying out pension reviews for clients. He says it has been a particular problem for clients going through a divorce.
“It is causing a real problem in divorce cases where there is going to be pension sharing because we cannot get the values anymore,” he adds.
Donna Bradshaw financial planning strategist at IFG says it is difficult for advisers if they are expected to make assumptions on a clients’ likely entitlements as part of a pension review.
She notes that while the website is down, advisers or their clients can still obtain forecasts by phoning a DWP advisor, but says this only adds further delays and work into the review process.