DC Quarter: Conquer the Comms Challenge

Introduction

DC member communications are crucial to help employees make appropriate decisions about their pension benefits. However, negotiating the legal restrictions leaves many employers feeling they are prevented from providing the necessary support and information. This News outlines how to give employees the information they need, without ending up on the wrong side of the FSA!

Key points

Occupational pension schemes must comply with statutory disclosure requirements.
Employers may promote their occupational scheme and, in certain circumstances, a personal pension scheme.
Pension scheme members should be provided with sufficient information to know their rights under the scheme.
Employers must steer clear of giving financial advice to their employees, unless they are authorised to do so by the FSA.

Compliance

Employers and trustees of occupational pension schemes must comply with statutory requirements. For example, the Disclosure Regulations1 require certain information to be sent to members on joining and prior to retirement.

Case law also makes it clear that employers need only provide enough information to employees to enable them to avail themselves of their rights under the pension scheme.2 However, if an employee could not reasonably be expected to be aware of particularly valuable terms, there is a duty3 to take reasonable steps to draw such benefits to their attention.

What employers can say

Employers can provide a lot of information to their employees without straying onto dangerous ground. For example they may tell employees:

how to join a scheme;
how much it will cost them;
how much the employer will contribute; and
what benefits the scheme provides.

The key is to stick to the facts. With this in mind, employers may provide quite detailed information by using illustrations of how certain choices (such as, how much to contribute) might affect benefits. This allows members to see why one option might be preferable to another.

What employers cannot say

Employers must not give financial advice (for example, advise their employees on a certain course of action), unless they are authorised by the FSA to do so. In addition, while employers with occupational pension schemes can promote their scheme (by raising awareness of it), they may only promote a personal pension scheme if:

the employer contributes to it;
the employer does not receive a direct financial benefit from promoting it;
promotions are handled by the employer or one of its employees; and
any written promotional material highlights the employees’ right to seek independent financial advice.

Investment

As DC members bear all the risk in relation to investment performance, they must be able to make an informed decision as to where their fund is invested. The FSA reminds employers that they are not in a position to advise employees which investment fund to choose, as such decisions have to be based on the individual’s attitude to risk and specific financial circumstances. Furthermore, providing wrong, inaccurate or incomplete advice could leave an employer potentially liable to the employee for any loss caused.

However, employers and trustees may:

give descriptions of the investment funds available;
give facts about contributions, investment performance and charges; and
describe how these three factors will influence the funds.

It can also be helpful to make use of information from other sources, such as the FSA’s Moneymadeclear website and TPR’s guidance on making pension fund choices.

If employees obtain sufficient knowledge and understanding of their scheme they are more likely to make the right choices for them.

1 The Occupational Pension Schemes (Disclosure of Information) Regulations 1996
2 University of Nottingham v Eyett [1999] 12 PBLR
3 Scally v Southern Health and Social Services Board [1992] 1 AC 294