Pension schemes: changes to disclosure requirements
Author: Suzanne Burrell
Applies to: England, Wales and Scotland
6 April 2015 brought in a range of new options for members with defined contribution pension savings.
The new disclosure obligations (set out by way of amendments to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013) require trustees and scheme managers to provide information to members about their right to access such 'flexible benefits'.
Schemes are also required to signpost the pensions guidance provided by Pension Wise (the service set up by the government to help individuals understand their retirement choices) when communicating with members about their options.
On top of the legislative requirements, the Pensions Regulator has issued draft guidance on communicating with members about pension flexibilities, in which it recommends that schemes develop generic risk warnings (for example, on the risks of a member underestimating his life expectancy) to provide to members who are considering accessing their benefits. The Pension Wise website includes suggested standard wording that schemes may use.
The new requirements
Information about flexible benefits needs to be provided at certain trigger points. These points are broadly: (i) when a member first joins a scheme (ii) on request if the member has reached normal minimum pension age (currently age 55) or meets the ill-health condition and (iii) at least four months ahead of a member reaching his normal pension age under the scheme. Schemes may also need to provide information to anyone who may be entitled to access flexible benefits on the death of a member.
The inclusion of a requirement to provide information from normal minimum pension age reflects the fact that this is the earliest point at which members are able to access flexible benefits under the new regime.
The requirement to provide information will apply if a member:
- has an opportunity to transfer or otherwise access flexible benefits;
- requests information about what he may do with his flexible benefits, or informs the trustees/managers that he is considering what to do with his flexible benefits;
- has reached normal minimum pension age or will do so in the next four months, or meets the ill-health condition
- has not been given this information in the previous 12 months.
Where the requirement applies, trustees must provide certain information within two months of the request having been made.
A checklist containing full details of the information to be provided once the requirement is triggered is set out here.
Changes to basic scheme information
With the coming into force of these amendments, what steps should be taken in order to meet the new requirements. Trustees and administrators should consider what changes will be needed to scheme practices to reflect the new requirements for communicating about flexible benefits.
As the revised disclosure regulations amend the basic information required to be provided to new joiners, trustees should consider whether they wish to update the member booklet (where such information is generally set out) or to provide a separate communication to members about the new flexibilities.
The introduction of the new disclosure regulations in April 2014 was an attempt to simplify the existing disclosure regime. However, following the major changes now being made to UK pension provision, a certain level of complexity has been reintroduced in order to ensure that members are fully informed about their options.
The extent of the takeup or interest in the options available to individuals in respect of their flexible benefits will become clearer over the next few months. Although few schemes are likely to receive a flood of requests for information immediately post-6 April, trustees and managers will need to assess their current systems and consider what changes must be made to ensure that their processes are not only fit for purpose in readiness for member requests, but also compliant with the new legislative requirements.
For more information please contact Jenny Farrell, Suzanne Burrell or your usual Shoosmiths pensions contact.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.