Pension providers will have to send all customers aged 50 and over regular updates about their pension fund from this week.
The new ‘wake up’ packs aim to encourage people to take an interest in their pension earlier and set more money aside for retirement if necessary.
Currently, ‘wake up’ packs are sent to customers four to six months before they’re due to retire and they tend to be long and confusing.
But under new rules coming into force from Friday (1 November), the pack will have to include a one-page summary of the pension.
It must also contain information about the government’s Pension Wise service and an explanation of the advantages of shopping around when purchasing a retirement income option – either an annuity or income drawdown – and how to do this.
The pack will also explain tax issues and the risks of pension scams and investment.
The Financial Conduct Authority (FCA) rules state customers should receive a pack from the age of 50, and then every five years after that until the pension is fully cashed in.
Packs will also need to be sent just before someone retires, whenever they request a retirement quote, and any time money is taken out of the pension, with no more than five years between each pack.
Since pension freedom rules were introduced in 2015, savers have had the right to do what they want with their pension. However, the flexibility has meant some people have made the wrong decisions, which has led to a permanent dent in their retirement income.
Jonathan Watts-Lay, director of Wealth at Work, a specialist provider of financial education and guidance in the workplace, said: “We have seen hundreds of thousands of people in our financial education seminars who simply don’t understand how to manage their income in retirement, and we have also all heard many stories of people who have ended up paying huge sums in unnecessary tax, or even losing their pension to scams.
“Hopefully the simplification and increased frequency of the ‘wake up packs’ will encourage people to take an interest in their pension and retirement earlier.”
However, Steve Webb, director of policy at Royal London, said savers need to be engaging with their pension much earlier.
“The whole notion of a ‘wake-up’ pack in the run-up to retirement seems rather dated; if you need ‘waking up’ it implies you were asleep before,” he said.
“In a world of pension freedoms, where people have many more choices and can exercise those choices from age 55, a single wake-up pack – however well written – doesn’t really do the job.
“Whilst improving the simplicity and clarity of pre-retirement communications is a good thing, providers really need to be taking customers on a journey of engagement, and that journey needs to start much sooner than a traditional wake-up pack on the eve of retirement.”