Pensions minister Steve Webb and The Pensions Regulator have launched a combined attack on providers for using jargon and legalese to put members of workplace schemes off shopping around for the best annuity, cutting them out of up to 33 per cent more income.
TPR has accused pension providers of designing pre-retirement information packs that confuse customers rather than communicate their right to shop around for a better deal.
TPR says while most pre-retirement communications do follow the letter of the law by mentioning the open market option, many ignore the spirit of the regulations because they are not communicating in a way that encourages members to shop around.
The regulator has published an updated leaflet ’Making your retirement choices’ to help members make good decisions about their retirement income. TPR says the issue is becoming more pressing because the DC trust-based market has reached maturity, with the over-50s making up 20 per cent of all DC trust-based scheme memberships. It is concerned that many pension scheme members face a steep learning curve in the period before they retire, following low levels of engagement with pension saving throughout their working lives.
TPR wants trustees and providers could do more to issue clear calls to action which encourage members to shop around for the best annuity deal. Despite 98 per cent of literature reviewed by the regulator including information on the OMO, only 23 per cent of members exercised their right to shop around to get the best deal.
Webb says: “The choices we make at retirement are amongst the most important of our lives. You don’t have to buy an annuity from your pension scheme provider. Shopping around can provide better value for money and significantly boost retirement income. I want to see trustees and providers really encourage members to make good choices.”
Bill Galvin, TPR acting chief executive, says trustees and providers have an important role to play in enabling better member decision-making. “Members could miss out on a higher retirement income because they are not well-supported in making good choices,” he says.
“Our research shows that standards of information are mixed. Retirement literature should grab members’ attention, and motivate them to take action, rather than putting people off with jargon or legalese.
“We want to see trustees and providers delivering simple information that helps members to maximise retirement income.”