The Department for Work and Pensions last month published a consultation document on the simplification of the requirements for the disclosure of information by occupational and personal pension schemes. The consultation requests views from interested parties on draft regulations which seek to "harmonise, simplify and consolidate" the existing disclosure requirements.
The key changes proposed are as follows.
- Consolidation of regulations: The disclosure requirements for both occupational and personal pension schemes would be contained in one place in a more user friendly format, with related information grouped together where possible. A significant number of the personal pension scheme requirements would be removed on the basis that these are products regulated by the Financial Services Authority, which has its own disclosure requirements.
- Basic information about the scheme: The list of information which must be disclosed to new members would be shortened and simplified. Only basic information would have to be provided, with more detailed information being made available on request. It is also proposed to simplify the rules on informing members about material changes to basic scheme information so that this would have to be given as soon as possible (but within 3 months) after the decision to make the change has been made.
- Lifestyling: Where schemes operate a "lifestyling" strategy (ie. where members' funds are moved into less risky investments as the member approaches retirement), members would have to be notified of this, advised of the date from which it applies and given a summary of the advantages and disadvantages of lifestyling. This information would be provided both at the time of joining the scheme and again in advance of lifestyling being applied to their funds (between 4 months and 2 years before).
- Defined Benefit Statements: The regulations for DB schemes' statements would be simplified. For example, to make it easier for schemes to deal with flexible retirement, they could use the most appropriate age when preparing statements rather than prescribing a specific scheme pension age.
- Statutory Money Purchase Illustrations (SMPIs): The DWP proposes that these annual statements are simplified, removing much of the accompanying information previously required. The requirement for SMPIs to be prepared on the assumption that the member will take an annuity with an annual increase and a dependant's pension would be removed as, in practice, most members actually select a flat-rate and single life annuity. This will allow SMPIs to be tailored to individual members, which may in turn assist in improving levels of member engagement on pensions. SMPIs could also take into account future contributions from deferred members where these are expected, which is not currently permitted, and, for schemes offering "real-time" statements, there would no longer be a requirement to notify members each time there is an update and annual notifications with the annual statement would be sufficient.
- Electronic communications: Schemes have been permitted to provide information to members by email or via a website since December 2010, although members can opt-out of this means of communication. The Regulations clarify the current position and would extend the availability of electronic communication going forward.
The consultation will run until 14 April, with the intention that the new regulations will come into force in October this year.