Keep pension statements simple

interactive investor comments on proposals on the simplification of pension statements.

The Department for Work and Pensions (DWP) this morning updated proposals on the simplification of pension statements.

Becky O’Connor, Head of Pensions & Savings for interactive investor, said: “At the moment, trying to work out what you can realistically expect to receive in retirement from an employer pot is a bit like pinning the tail on the donkey.

“So simplification and standardisation should help people to make more sense of these statements.

“Workplace pension savers are pretty much in the dark about what they can realistically expect to receive in retirement from their employer pots.

“Projections on statements vary dramatically, often by hundreds of thousands of pounds from the lowest to the highest estimates, which makes proper planning difficult. It’s also really hard to work out the total impact of charges on an individual pot over the decades.

“In no other area of life are we so universally unaware of what we are paying for something.

“Currently, there is a danger of over-optimism, which can lead to some poor decision-making along the way, like giving away too much money to children, for example, or taking on large interest-only mortgages with the expectation that it will be possible to pay them off on retirement with a big lump sum, which may never materialise.

“At the moment, it is also hard for workers to identify whether they are better off moving their pension elsewhere.

“Our pensions could end up being the biggest amount of money any of us ever have to our names, so it’s really important we know how much they are likely to be worth when we need to access them.

“On the whole, we need more information about our pensions.

“So much future happiness rests on the financial security that a decent pension brings. We need to feel confident that we know what we are paying, where our money is going and how much we are likely to have.”