Employers and other pension providers could face a PR disaster following new government regulations out next week.
From 6 April, members of money purchase schemes must be given individual statements showing how much, or little, pension they will get on retirement. The projections could come as a shock to many people.
The projections will not make for attractive reading in many cases. They could also create a lot of confusion amongst members," said Nick Throp, European Partner at Mercer Human Resource Consulting.
Up to now, most members’ annual pension statements have shown only the value of their pension funds. In future, members will also receive a projection of the annual pension that their individual fund might buy.
The illustration will be in "real terms," allowing for inflation and directly comparable with today’s prices. The new figures may be considerably lower than members’ expectations. (In some cases, the new projections could be as little as half the previous figures that members have received.)
The regulations will most obviously affect members of occupational ‘money purchase’ schemes, personal pensions and stakeholder pensions. However, members of final salary schemes will also be affected if their arrangements include money purchase-based Additional Voluntary Contributions or contracted-out protected rights funds.
"Despite the current turmoil in pensions, many people are still in denial about what it all means to them. The new personal statements are bound to remove some of the current complacency," said Mr Throp.
"The one piece of pension communication that we know members take notice of is their personal benefit statement - it’s got their name on it and pound notes attached to it. It will certainly strike home a strong message."
Mercer has observed that many companies are not preparing themselves for the reaction these statements may prompt.
"The new projections will merely add to members’ general confusion about planning for retirement. Many will find the new statements confusing, and will need help to understand why the new amounts are lower than last year’s, for example," said Mr Throp.
"Companies know that they will have to issue these statements and that they are going to be confusing and bad news for many. Yet very few are actively engaging their workforce beforehand to explain why and what members can do about it," said Mr Throp.
"This needs a pro-active communication programme, otherwise employers could find themselves on the back foot, reacting to a howl of protests."