Deregulation of disclosure requirements left out in the cold?

In this Alert:

• Key point
• The 2009 Consultation
• Responses to consultation
• 2010 Consultation on draft regulations
• The future for disclosure?

Key points

• Procedures for electronic communications between pension schemes and their members will be formalised, but other plans for simplifying disclosure requirements have largely been shelved.
• The requirements for statutory money purchase illustrations will be simplified.
• From 1 October 2012, basic scheme information will need to be provided to members within one month of joining instead of two as currently.

The 2009 Consultation

Pension scheme disclosure was identified in the Deregulatory Review1 as an area which could lead the way in terms of a principles-based approach to legislation, so as to create a “sensible and straightforward regulatory framework”. By giving employers and trustees greater flexibility to communicate in a way which is appropriate for the circumstances of their own arrangements, it was envisaged that schemes could operate more efficiently and cost effectively.

In March 2009, the DWP issued a consultation on proposals to simplify the requirements on pension schemes to disclose information to members and other beneficiaries. The consultation proposed a single overarching disclosure principle, complemented by specific disclosure requirements where required for particular circumstances. It also suggested that fixed time limits for providing certain information currently set out in legislation could be replaced by “reasonable periods”.

Responses to consultation

The DWP received wide ranging responses to its consultation. Many considered that the overarching principle would increase rather than lessen the burden on pension schemes and create uncertainty for members. A certain level of prescription was therefore welcomed as providing a universal disclosure standard – seen as helpful for members and professionals alike. It also enables administration systems to be streamlined. Similarly, “clearly understood timescales” were generally viewed as more advantageous for members.

The DWP has therefore decided not to pursue either of these proposals.

2010 Consultation on draft regulations

The DWP is now consulting on regulations incorporating those elements of the 2009 consultation which made the cut. The regulations are generally intended to come into force on 1 October 2010, with the consultation closing on 1 March 2010.

Electronic Communications

Finally bringing pension schemes into the 21st Century, the draft regulations build on existing practice, enabling employers and trustees to disseminate scheme information by email or by posting documents on a website. Members will also be able to request information electronically.

While schemes will have the option of making electronic means their default method of communication, members will nonetheless be able to opt out and request (in writing) to continue receiving paper copies. There will also be a number of safeguards in place, to protect both members and trustees / employers. For example, members will need to be made aware of any change in communication method and be notified when documents are uploaded to the scheme’s website or when changes are made to existing documents. Schemes will also need to take account of people with a visual impairment.

Additional changes

Other changes to the existing disclosure requirements included in the draft regulations:

• reduce the maximum period within which new members of an occupational pension scheme must be provided with basic information about the scheme – from two months to one month. This is designed to tie in with timescales which will apply for automatic enrolment into qualifying workplace pension schemes from 2012;
• change the information requirements for SMPIs, allowing schemes to produce shorter and more straightforward statements; and
• exempt NEST2 from the requirement to provide information to early leavers, on the basis that under the NEST rules as they stand, members will not be able to transfer benefits out of the scheme.

The future for disclosure?

The DWP is to give further consideration to what can be done towards bringing together, into a single set of regulations, disclosure requirements covering occupational, personal and stakeholder schemes.

However, it is perhaps disappointing that, for now, the Government’s first real attempt to deregulate pensions legislation appears to have been left out in the cold.

1 Chris Lewin and Ed Sweeney (July 2007) – Deregulatory Review of Private Pensions: An independent report to the DWP

2 Formerly known by its working title of Personal Accounts