Sackers’ Response to DWP Consultation on the Disclosure Regulations 2013

Background

The DWP’s consultation on The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (the Regulations) seeks to:

• streamline the regulations on disclosure, harmonising the terminology used and adapting outdated references;
• simplify certain requirements; and
• clarify the rules on electronic communications.

Overall we support the DWP’s proposals. Our initial impression is that the draft revised regulations are structured in a way that makes them easier to navigate.

In this response:

• Additional Voluntary Contributions (AVCs)
  
• Lifestyling
  
• Flexible retirement
  
• SMPIs – Annuity Assumptions
  
• Electronic Communications
  
• A principles based approach?
  

Additional Voluntary Contributions (AVCs)

It is helpful that the amendments remove references to obsolete requirements, such as that requiring occupational pension schemes to offer AVCs. However, given that one of the broad aims of the present consultation is to support the “reinvigorating workplace pensions strategy”, the removal of all references to AVCs could be seen as contrary to this aim. For clarity, a reference to AVCs could be incorporated into paragraph 14 of Schedule 2 to the Regulations. This may help to ensure that schemes that have retained an option to offer an AVC facility include details of this in the description of the benefits offered.

Lifestyling

The inclusion of information on lifestyle (and similar) funds is important, given the requirement for auto-enrolment schemes to offer a default fund. Many of the default funds on offer will use some kind of lifestyle arrangement. Paragraph 30(c) of Schedule 2 currently requires a “summary of the advantages and disadvantages of lifestyling”. In our view, this type of description is likely to be subjective and, alone, may be insufficient to describe the mechanism of such a fund. We therefore suggest that a requirement to include a description of the way in which the lifestyle fund operates, which includes the advantages and disadvantages of the particular type of lifestyle fund selected, would be of more practical benefit.

Flexible retirement

Given the increasing popularity of flexible retirement arrangements, we welcome the move to allow schemes to use the most appropriate retirement date when preparing DB statements, rather than a specific scheme pension age.

SMPIs – Annuity Assumptions

It is helpful to incorporate a certain amount of flexibility for SMPI annuity
assumptions, to allow schemes to reflect, more accurately, the typical annuity
choices of their members. However, there is a risk that assumptions could be
skewed to make the SMPI figures very positive, whereas this may not reflect what members are in fact able to obtain. In addition, giving schemes the flexibility to choose the assumptions they use for this purpose has the potential to cut across the DWP’s aim of ensuring that members “get consistent information from their pension schemes […] so that they recognise and can engage with what they are being told”.

We also note that the Consultation intends that members will be allowed to choose their own assumptions should they wish to do so. This appears to add an administrative burden for trustees, unless members can select the details
electronically. In any event, we cannot see where this provision is included in the Regulations.

Electronic Communications

We welcome the DWP’s objective to simplify the provisions on electronic disclosure and to clarify its original policy intention. However, in our view these provisions remain unnecessarily complicated.

Electronic communications are now commonly used and many employers and
individuals are familiar with the use of electronic communications. We recognise that certain individuals still prefer to receive hard copies of documents and should be given the option of doing so. However, a requirement to contact members by post on multiple occasions prior to posting information on a website seems to create an unduly onerous burden for trustees. In our experience, pension scheme trustees are sufficiently familiar with the profile of their membership to know which methods of communication are appropriate and are therefore able to tailor their communications accordingly.

The Consultation asks whether it is still appropriate that certain information should be “available for inspection at a reasonable location”. In our view, this facility is outdated and, given the common use of electronic communication and websites for pension schemes, is no longer required.

A principles based approach?

In 2009, the DWP consulted on a “Review of disclosure information requirements applying to Occupational, Personal and Stakeholder Pension Schemes”. This included a proposal for “a high level, overarching principle to which schemes must have regard in determining their disclosure requirements and in interpreting the regulations themselves”. As we noted in our response to the 2009 review, whilst we support the simplification of pensions regulations generally, we remain of the view that the introduction of an overarching principle, in addition to various specific requirements, has the potential to add to the disclosure burden as opposed to alleviating it and to complicate matters for those required to have regard to the overarching principle as well as the specific requirements.

We agree with the DWP’s comment that the present consultation will streamline the structure of the disclosure regulations, whilst maintaining “a level of prescription that provides clarity for schemes regarding the information they are required to provide to their members”. It is this “clarity” which is key for trustees and others involved with pension scheme administration. It also enables a consistent approach across all pension schemes for individuals who have membership of more than one scheme, allowing them to keep track more easily of information and deadlines. In addition, any significant changes to the structure of the disclosure requirements could lead to additional expense for schemes.

For these reasons, we consider that the changes currently proposed should, if
adopted, be given sufficient time to become established, before any further changes are contemplated.