The Department for Work and Pensions (DWP) has launched a public consultation on the new disclosure of information regulations which are intended to “harmonise, simplify and consolidate” the existing disclosure regime.
The Existing Disclosure Regulations
The existing disclosure requirements are found in the Occupational Pension Schemes (Disclosure of Information) Regulations 1996 (SI 1996/1655) introduced under the Pensions Act 1995. These regulations set out the requirements on trustees and employers to disclose certain information to pension scheme members, prospective pension scheme members, beneficiaries, spouses and civil partners, and in some cases, recognised trade unions.
The existing Regulations introduced a requirement for trustees to provide members with basic information about their schemes as standard, together with a requirement to disclose further information upon request. There have been a number of updates to the existing Regulations to allow the provision of electronic information rather than by post, however the current disclosure regime is generally regarded as a heavy burden on trustees and employers. A breach of the existing Regulations can result in fines of up to £5,000 for an individual and £50,000 in any other case.
Many of the changes proposed by the Consultation are a simplification of the old requirements, for instance, AVCs and whether the scheme is tax approved will not be “basic information” and schemes need only confirm whether they are tax registered. For defined benefit schemes, it is proposed that benefit statements can be based on the most appropriate retirement age rather than a scheme specific pension age to help deal with flexible retirement.
Other proposed changes introduce new types of basic information, such as informing members about lifestyling. Many stakeholder pension schemes and defined contribution schemes will already use lifestyling to adapt investment strategies as a member nears retirement. However the DWP proposes that schemes must now notify members of the lifestyling strategy prior to its implementation.
The consultation also seeks to future proof the regulations by extending and consolidating the use of electronic communications available to schemes so that disclosure can take place by email or by using a website. In particular, the DWP have identified disclosure requirements which refer to communications being ‘in writing’ and as a result prevent disclosure by using a website. The proposed regulations do not prescribe how the information must be sent, and there is no requirement for schemes to use electronic information. The member will retain the ability to opt out of electronic communications.
The advent of auto-enrolment has increased the potential responsibilities on employers and trustees to provide information in a timely manner to workers in pension schemes. The consolidation of the disclosure regime and to harmonise it with the new duties imposed by auto-enrolment is critical to prevent trustees and employers being subsumed in the technical information which must be provided to members.
The consultation therefore proposes some simplification to the annual benefit statements provided by defined contribution schemes. Particularly in relation to Statutory Money Purchase Illustrations (SMPIs), the draft regulations seek to simplify the information provided to members, and remove the specific annuity requirements so that Schemes can choose assumptions which give “more meaningful annual projections” according to their understanding of member circumstances.
The Consultation will run until 14 April 2013 and the draft regulations are expected to come in to force in October 2013.
The proposals will be welcomed by trustees and employers as a further simplification of their duties to disclose information to members at a time when the regulatory requirements imposed on trustees and employers are generally increasing. The update which will allow further use of websites to effect disclosure reflects a growing trend for schemes to meaningfully engage with their members rather than simply send a mass of technical information to a postal address.