Response to consultation on disclosure

Introduction

The DWP has published its response to the consultation on the disclosure requirements for occupational and personal pension schemes.

In this Alert:

• Key points 
• Background
  
• Response to consultation
  
• Principles based approach?
  
• Guidance?
  
• Next steps
  

Key points

• Draft regulations have not yet been issued but, according to the response, they will be in broadly the same form as those published for consultation.
• Schemes which intend to adopt a lifestyling strategy will be required to inform members of this twice; both as part of the basic scheme information and again between five and fifteen years before their retirement.
• The new regulations will come into force on 6 April 2014 (rather than 1 October 2013 as originally proposed) to give schemes sufficient time to comply with the changes.
• Responses indicated “no overwhelming desire” to move to a principles based approach so this will not currently be pursued.

Background

In February 2013, the DWP issued a consultation1 which sought views on proposals to consolidate, simplify, update and, where possible, harmonise the disclosure requirements for occupational and personal pensions schemes.

In particular, the DWP suggested:

• simplifying the structure and language of the existing disclosure regulations;2
• removing any disclosure requirements for personal pensions which are duplicated by those in the FCA requirements;3
• simplifying some of the basic information which occupational schemes are required to disclose to prospective and new members;
• making a number of changes in relation to benefit statements and SMPIs, with the aim of making these more flexible and relevant to members’ needs;
• clarifying the rules about giving information electronically (by email or on a website) and amending other private pension legislation to make clear that all information may be given by electronic means; and
• introducing a new requirement for schemes to provide information about lifestyling, where schemes adopt this strategy.

Response to consultation

As responses to the consultation were “generally supportive” of the DWP’s proposals, the suggested amendments to the disclosure regulations will remain substantially in the same form. Key changes are:

• the amendments will now come into force on 6 April 2014 (rather than 1 October 2013) to give schemes more time to prepare;
• although originally pencilled in for removal, the requirement for schemes to provide information about arrangements for AVCs will be reinstated as many schemes still offer such a facility;
• the requirement to provide information on lifestyling, where a scheme intends to adopt this strategy, has been redrafted. Members will need to be told about lifestyling as part of the basic scheme information and again between five and fifteen years before their retirement;
• schemes will no longer have to automatically issue SMPIs to new members where no contributions have been made and there are no accrued benefits, or where the member is in their auto-enrolment opt-out period when the statement is due. However, schemes may continue to send a statement if they wish to do so.

Principles based approach?

The consultation also asked for views on whether exploring a principles based approach to disclosure (put forward as long ago as 2007 by the Deregulatory Review4) would be welcomed. However, as responses indicated no desire to move to a principles based approach, it seems that this possibility may now be abandoned once and for all.

The DWP also appears confident that the new regulations are “a step in the right direction” making the requirements easier to read, as well as allowing some elements of flexibility. In addition, the new provisions are intended to provide “clear rules so that schemes are aware of their disclosure obligations and members can be confident that they will be given the information they need about their pension at the appropriate time and by the most appropriate method”.

Guidance?

Having received a mixed response to its suggestion of producing guidance to the disclosure requirements, the DWP intends to look into this in more detail. It will work with TPR, the FCA and the pensions industry to consider where additional guidance, supporting that issued by TPR and the FCA, might be beneficial.

Next steps

The DWP aims to make and lay the new regulations as soon as possible after the summer recess.

1 Please see our Alert: “Disclosure Consultation 2013 – Third time lucky?” (dated 20 February 2013)
2 The Personal Pension Schemes (Disclosure of Information) Regulations 1987; the Occupational Pension Schemes (Disclosure of Information) Regulations 1996; and Regulations 18 to 18E of the Stakeholder Pension Schemes Regulations 2000
3 Namely, the FCA Conduct of Business Sourcebook

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