Disclosure Regulations

Valerie Hartley

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In the early part of 2013, the DWP consulted on proposals to consolidate and simplify the existing Disclosure Regulations which will come into force on 6 April 2014.

The Disclosure Regulations specify information that must be provided by pension schemes, to whom it must be provided, and ultimately ensuring members and others are given a consistent level of information. This also extends to schemes having the certainty of knowing what information they should provide and when to provide this.

The Disclosure regulations have been in force since 1987, and have been amended regularly since inception. There are indeed separate regulations for occupational schemes, personal pension schemes and stakeholder schemes. The intention is that the new regulations will replace and consolidate the existing regulations that apply to occupational and personal pension schemes.  For stakeholder schemes, these will remain within the stakeholder schemes regulations, but will be amended to be the same as that of occupational and personal pension schemes.

There are many detailed amendments, which align the requirements for the different types of schemes. Many of them are not as significant so as to reduce the need for immediate action.  Most of the significant changes apply to defined contribution (‘DC’) schemes, with one applicable across the board. Regulations made in 2010 allowed electronic delivery of information, either by email or via a website. Those regulations did not cover all of the disclosure requirements, and to some, they felt the position relating to members who did not respond to requests for an email address was unclear. The new regulations allow for any information which must be disclosed to be provided electronically, although members can choose to have it sent by alternative means. The regulations clarify the rules to be followed if electronic communication is used.

There are two major changes affecting some or all DC schemes, plus some revision of the requirements for Statutory Money Purchase Illustrations (‘SMPIs’). The first major change is to eliminate some of the duplication between DWP regulations and the requirements of the Financial Conduct Authority (‘FCA”) formerly the Financial Services Authority (‘FSA’).  As personal pensions are a regulated product, the FCA requires information to be provided as part of the process of marketing and selling them. In general, where the DWP regulations required the same information to be provided, that requirement has been removed from the regulations.

The second major change requires DC schemes that operate any form of lifestyling to provide details as part of the initial scheme information, and again between 5 and 15 years before any changes to the investments commence. The is to provide members with an opportunity to consider when they will actually retire, rather than have lifestyling changes based on an assumed retirement date.

Schemes will be allowed more flexibility in deciding the assumptions to be used when preparing SMPIs. At present, projected pensions must assume an annuity that increases in payment, with a contingent pension payable on death. Based on research, the majority of relevant annuities are purchased on a single life, level payment basis. Schemes can choose a basis that is believed to be appropriate for the average membership of the scheme and members must be advised if the annuity assumptions change since the previous statement.

Trustees should therefore review the current documents disclosed to members to identify whether any changes need to be made in advance of the regulations coming into force on 6 April 2014. Should any changes be required in particular relation to disclosure around lifestyling strategies, then the appropriate action should be taken.

Additionally, trustees should consider whether the increased flexibility concerning SMPIs can be used to improve the information being offered to members.