Savers with a Royal London pension will now receive information packs about their pension five years ahead of their chosen retirement date.
Under current rules, pension providers are only obliged to send customers a so-called ‘wake up pack’ six months ahead of their chosen retirement date. Typically, such packs include information on the pension holder’s options, such as purchasing a fixed income annuity, taking cash payments, and the potential tax liabilities of these options.
However, Royal London will now send out such information well ahead of the statutory minimum, starting at five years ahead of pension savers’ chosen retirement date.
Customers will also receive a pension pack every year after their birthday for the next five years as a reminder to consider their options. The company say the typical retirement age selected by their customers is 65, which means on average they will start receiving prompts from their 60th birthday.The provider hopes this will encourage better engagement from pension holders and more long-term decision making.
Packs will also contain information on how to find an Independent Financial Advisor (IFA) using services such as Unbiased or the government’s Pension Wise.
Royal London’s move appears to be in anticipation of the outcome of the ‘Retirement Outcomes Review’ by financial watchdog the Financial Conduct Authority (FCA). This review is looking at how the retirement income market is changing in the wake of pension freedoms. Royal London tells Moneywise it believes changes in regulation with regards to how early providers have to deliver wake up packs to customers will likely be recommended in the review.
The move by Royal London follows a trial by financial provider LV= launched last year, which saw it introduce a ‘Pension Passport’ instead of the traditional pension pack in a bid to provide more tailored information to improve customer engagement with pension savings. LV= still send out information at six months ahead of retirement but say they are reviewing this as part of the process of introducing their new packs.
Jamie Clark, pensions expert at Royal London comments: “It’s not just about extending the length of the conversation. We also want our customers to really engage with their retirement planning while encouraging them to seek impartial financial advice. That’s why we’ve worked with real customers to create a new suite of retirement communications. Using simple steps, clear visuals and plain English, we think our new material challenges the style of communication customers might have come to expect from their pension provider.
“We believe this new approach will not only improve customer engagement – but will also help them make more informed decisions when the time comes.”
‘Making meaningful decisions about retirement takes time’
Chartered financial planner, Martin Bamford from Informed Choice, sees Royal London’s move as a positive one. He says: “It’s essential we start conversations earlier with clients. It takes far longer than six months to consider all of the factors which contribute to meaningful decisions about retirement and later life.
“By prompting these conversations five years before the chosen retirement date, Royal London is giving customers the opportunity to seek independent financial advice and really plan for what life in retirement looks like. It also creates more time to consider appropriate investment strategies, which for some retirees could mean reducing risk in their pension portfolio ahead of an annuity purchase.
“The style of the communication is also important, with life assurance companies historically bombarding customers with reams of information that, realistically, they will never bother to read. Being clear with the message and accompanying call to action will hopefully prompt more customers to take positive action at an early enough stage to make a difference.”
See below an example of how Royal London's new wake up packs will look: