Disclosure Consultation 2013 – Third time Lucky?

Introduction

The latest DWP consultation1 revisits the disclosure requirements for occupational and personal pension schemes, with a view to harmonising the requirements where possible and updating them in line with changes in legislation.

In this Alert:

• Key points
• Background
• Overview of the proposed changes
• Consolidation and simplification
• Specific changes
• On the horizon
• The more things change…

Key points

The main aims of the present proposals are to:

• support the “reinvigorating workplace pensions strategy”;
• streamline the regulations on disclosure, harmonising the terminology used and updating outdated references;
• simplify certain requirements, for example, making it easier for schemes to deal with flexible retirement by using the most appropriate retirement date when preparing the statement rather than prescribing that a specific pension scheme age must be used; and
• clarify the rules on electronic communications.

Background

This is not the first time that the DWP has looked at simplifying the disclosure requirements for pension schemes.

First introduced some 25 years ago, the requirements have been amended over time to take account of evolving policy changes. As long ago as 2007, the Deregulatory Review2 identified pension scheme disclosure as an area which could lead the way in terms of a more straightforward regulatory framework, using a “principles based” approach to enable employers and trustees to have greater flexibility to communicate in a way that suits the circumstances of their own arrangements.

Since then, the disclosure requirements have been the subject of DWP consultations in 20053 and 2009.4 However, in the absence of any significant changes to date5 and with the regulations still considered difficult to navigate, the DWP is seeking once again to simplify the requirements for schemes.

Overview of the proposed changes

As well as needing to keep pace with the changing pensions landscape and the agenda for workplace pensions reform, the DWP’s main aims of the present consultation are to:

• provide clarity for schemes on their regulatory requirements;
• increase transparency so as to build trust, confidence and engagement in pension saving;
• allow a consistent approach to disclosure across different scheme types, in a bid to simplify scheme administration and provide member protection; and
• ensure that individuals can access the information they need to understand and manage their pension provision.

Consolidation and simplification

The main change put forward by the consultation is the consolidation of the separate rules governing occupational and personal pension scheme disclosure.6 The regulations will also be restructured, so that they are clearer and easier to use, by grouping related information requirements together where possible.

It is hoped that simplification will also be achieved by removing a significant number of the requirements for personal pension schemes, on the basis that these are different products, regulated by the FSA and subject to the rules on selling and marketing under FSMA. The DWP also intends to remove many of the duplications and discrepancies between FSA requirements and those for occupational pension schemes.

Specific changes

Many of the planned substantive changes are simply designed to update the existing requirements in line with changes in legislation. However, proposals to note include:

• a requirement to notify members of any material alterations to basic scheme information7 as soon as possible (but no later than three months) after the decision to make the change has been taken (currently notification is required “before that change takes effect, where it is practicable so to do, and in any event not later than 3 months after that change has taken effect”);8
• a new requirement in connection with lifestyling and similar strategies such as target date funds. Schemes will be required to include an explanation of the process within the basic scheme information and again at the time a member’s fund is subject to lifestyling;
• certain changes to SMPIs to ensure they are appropriate for new savers joining as a result of auto-enrolment, as well as existing savers, including greater flexibility to tailor statements to members’ needs;
• changes to the existing provisions for electronic disclosure9 to clarify the original policy intention, particularly in connection with disclosure using websites; and
• harmonising timescales for disclosing information across all scheme types, although the majority of these proposed changes should not result in schemes having to disclose information any earlier than is currently required.

On the horizon

Other changes on the horizon which may affect the disclosure requirements are being monitored by the DWP, including:

• amendments to the definition of “money purchase benefits”, which are expected to come into force in 2013 (subject to consultation on the proposed amending legislation);
• transparency of charges, building on the Joint Industry Code of Conduct;10
• automatic transfers of small pension pots – the DWP intends to bring forward primary legislation “as soon as practicable”; and
• the Government’s “defined ambition” proposals.11

The more things change…

While various changes are proposed, it is intended that a number of requirements will stay the same. For example, benefits statements for DB schemes will still need to be provided on request and not annually as for DC schemes.

However, the DWP has not completely abandoned the idea of a “principles based” approach and is keen to hear views on this. The DWP is also considering whether additional guidance on disclosure (which would be aligned with existing FSA and TPR guidance) would be helpful to support the regulatory framework.

The consultation (to which Sackers will be responding) closes on 14 April 2013, with implementation currently scheduled for October 2013.

1 Published on 18 February 2013
2 Chris Lewin and Ed Sweeney (July 2007): Deregulatory Review of Private Pensions: An independent report to the DWP
3 Please see our Alert: “Disclosure of information – consultation published” (13 September 2005)
4 Please see our Alert: “Fresh approach to disclosure regulation” (16 March 2009)
5 Please see our Alert: “Deregulation of disclosure requirements left out in the cold?” (14 January 2010)
6 Stakeholder schemes are not covered in this consultation. It is intended that the stakeholder framework should be kept separate, so that such arrangements can be identified “as a discrete identifiable product”
7 Commonly set out in the scheme booklet
8 The Occupational Pension Schemes (Disclosure of Information) Regulations 1996, Reg. 4(5)
9 Please see our News: “Disclosure requirements enter the electronic age!” (November 2010)
10 Pension Charges Made Clear: Joint Industry Code of Conduct (November 2012)
11 Please see our Alert: “The Government defines its ambition” (26 November 2012)