Urgent changes to 'confusing' state pension statements needed, MPs say

The Work and Pensions Committee is currently conducting an inquiry into whether people sufficiently understand the NSP, which will replace the existing basic and additional state pensions for those reaching state pension age (SPA) on or after 6 April 2016. It has issued an interim report on the way the government is communicating these changes to affected individuals because it is "so concerned about misinterpretation attributable" to confusing statements, according to the report.

"At a crucial time of reform to the state pension and the state pension age, DWP statements are insufficiently clear," the committee said in its report.

"This lack of clarity increases the changes that people misunderstand the value of their state pension or the age from which they will receive it. In turn, this increases the chances that they will not best plan for retirement. State pension statements must be as simple and approachable as possible, while enabling those who want more information about the detail or calculation of their entitlements to have it," the report said.

Among the "immediate" changes proposed by the committee are reducing pension statements to one page in length, highlighting "key messages" in boxes and changing the order and some of the language that appears in pension statements. The SPA should also be highlighted in a prominent position on the statement, especially for those whose pension age has changed, the committee said.

The committee added that the DWP had "demonstrated a willingness to adjust statements" in response to feedback it had received from customers.

Pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com, said that although it was "hard to argue" with the report's main message, the committee had not provided many details about how state pension statements should be simplified and made more approachable.

"The committee concedes that there is a lack of agreement about what information individuals really do need, in particular the level of detail required, so it’s hardly surprising that these statements have failed to satisfy many savers," he said.

"Perhaps the committee's time would have been better used considering how to manage public expectations for such statements. Pension statements cannot be all three of simple, short and comprehensive. Pick any two out of three - and then tell the public clearly which two they can expect," he said.

The NSP, or 'single tier' pension, will be introduced at a flat rate set above the means test and will be based on 35 years of National Insurance contributions (NICs). It will be introduced along with changes to the SPA, which will equalise the age at which both women and men become eligible for the state pension.

The way in which the government has communicated changes to the SPA for certain women born on or after 6 April 1951 has already been criticised by the committee as well as campaigning groups. The rate at which the SPA will be increased for both sexes has been accelerated by the government in a way which means that some women will be retiring six years later than they originally anticipated.

The committee intends to address the merits of introducing transitional support to these women as part of its final report, along with the quality of other state pension-related communications.