The DWP is consulting on changes to the Disclosure of Information Regulations in order to harmonise, simplify and consolidate the requirements. The changes are set out in the draft Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013, which are expected to come into force in October 2013.
Introduction
The amendment of the regulations has two overarching aims:
- to enable schemes to make the disclosure of information more engaging for members and
- to introduce more consistency between schemes so that members are better equipped to take decisions about their pensions when they change job.
The existing regulations surrounding the information that schemes have to provide to their members is contained in three different instruments, relating separately to occupational schemes, personal pensions and stakeholder schemes. These set out what information must be provided, in what circumstances, to whom and when. As part of the “Red Tape Challenge”, the DWP identified these regulations as being an area that could benefit from simplification.
In these changes the DWP proposes to retain separate regulations for stakeholder schemes, although the actual requirements applying to such schemes will be brought into line with those applying to occupational and personal pensions. However, the requirements for occupational schemes and personal pensions will be consolidated into one set of regulations.
As far as possible the timescales for providing information have been harmonised across all types of scheme.
Personal Pensions
Since these are regulated also by the successor bodies to the Financial Services Authority, the DWP proposes to remove from the regulations any requirements that are duplicated by FSA requirements. Those retained are the requirements to inform members of:
- the removal of a stakeholder scheme from the stakeholder register,
- annual benefit statements, including benefit projections,
- pre-retirement information,
- death benefits and
- information when the scheme has begun to wind up.
Statutory Money Purchase Illustrations (SMPIs)
The draft regulations no longer require that the illustrations be calculated assuming that the member opts for an increasing pension and a 50% dependant’s pension when he retires. Instead, schemes can be more flexible in the assumptions they make about the shape of benefits that a member may take at retirement, allowing – for example – for the member to take part of his fund as a tax-free cash sum if they deem it appropriate. Should a pension scheme decide to change the assumptions used in the SMPI, they must inform the member that they have done so and explain the effect this has on the illustration.
Electronic communications
Schemes may disclose information to members electronically, unless the member notifies the scheme in writing that he does not wish to receive information electronically. The electronic methods of disclosure allow schemes to make information and documents available on a website.
When the scheme makes the first website disclosure to a particular member, it must send a notification to his last known postal or electronic address, with the following information:
- a statement that the information or document is available on the website,
- the website address,
- details of the location on the website where the information or document may be read and
- an explanation of how the recipient may read the information or document.
If the scheme discloses further information to the member via a website, it must send a notification to his last known postal or electronic address, notifying him that the information or document is available on the website.
Other regulations have also been amended to allow the use of electronic communications.
Other Changes
The requirement to provide information on transfers out to new members of occupational schemes has been amended so that only basic information need be provided, with more detailed information being available on request.
A new requirement is being introduced for occupational and personal DC schemes to provide information about their lifestyling programme (through which members’ investments are switched gradually into Bonds and Cash as they approach retirement), including the advantages and disadvantages of such a programme. This information must be given when members join the scheme and again between four months and two years before they reach the age at which the lifestyle switching is due to commence. Currently such a requirement applies only to stakeholder schemes.
And the Future?
As part of the consultation DWP is canvassing views on moving to a more principles-based disclosure regime, which it suggests might incorporate a single high-level principle such as:
“Members should be given sufficient information that allows them to understand the benefits to which they will be entitled and any other relevant information that will enable each member to make decisions in his or her best interests”
Comment
Any measure which reduces the administrative burden on schemes and enables them to communicate more meaningfully with members is to be welcomed. The draft regulations are not short – still reaching to 40 pages even without counting those applying only to stakeholder schemes – but they do at least represent a small step in the right direction.