The Department for Work and Pensions (DWP) has finally issued a consultation paper outlining how it plans to revise the disclosure of information requirements for occupational pension schemes. The consultation proposes a simplified, more principles-based disclosure regime.
Background
The current disclosure regime (the information that occupational pension schemes are required to provide to their members) dates from 1996. A first attempt at reducing the disclosure burden was put to one side in 2006 when many other legislative changes affecting occupational pension schemes were introduced.
In the Deregulatory Review of Private Pensions 2007 the authors, Chris Lewin and Ed Sweeney, recommended that the government should consider adopting a ‘principles-based’ approach when regulating occupational pension schemes, particularly in the context of the disclosure of information requirements. The government responded by setting up a working group to consider the suggestions in the Review report. The current DWP consultation paper is a result of that working group.
Proposals
The consultation paper sets out new disclosure regulations that combine both a list of specific disclosure requirements (modelled on the current disclosure requirements) and a high-level, overarching principle to which schemes must have regard when determining their disclosure arrangements and interpreting the regulations.
Specific disclosure requirements
Although the specific disclosure requirements are modelled on the current disclosure requirements there are some welcome changes. In particular, the new requirements will exclude the need to provide information to persons for whom trustees do not have current contact details and information will be able to be issued by e-mail unless a scheme member specifically requests that it be sent by post.
The existing timescales for providing members with information will be replaced by a general requirement to provide information within a ‘reasonable period’, with the Pensions Regulator required to issue a Code of Practice outlining what is reasonable. In other areas of pensions law where it has been required to define ‘reasonable periods’, the Pensions Regulator has generally adopted a pragmatic and sensible approach, usually with some flexibility to allow for unforeseen or specific circumstances. Replacing explicit timescales may, therefore, be a good thing, although the devil will undoubtedly be in the detail of the Code of Practice.
Overarching principle
Although the Deregulatory Review recommended exploring a ‘principles-based’ approach to disclosure regulation, the DWP has concluded that it is not appropriate because it could create uncertainty through schemes not knowing exactly when information should be supplied, as well as leading to additional costs for schemes on legal and other fees. Unfortunately, the consultation document also rather muddies the water by proposing a new overarching principle to which schemes must have regard when determining their disclosure arrangements and in interpreting the new regulations themselves. The suggested wording for the principle is:
‘Members should be given sufficient information that allows them to understand the benefits to which they will be entitled and any other relevant information that will enable each member to make decisions in his or her own best interests.’
This is likely to add to the existing burden placed on scheme trustees rather than reduce it and is likely to create a great deal of uncertainty. For example, does the principle add to the specific disclosure requirements that will be set out in the new regulations? If not, why do we need it? If it does, what additional information will trustees of schemes need to disclose?
The proposed wording is also rather disturbing as it refers to an obligation to provide ‘other relevant information that will enable each member to make decisions in his or her own best interests’. This may suggest that scheme trustees have to consider the information needs of each member individually – an almost impossible task for most schemes and a significant extra burden and cost. However, at the same time trustees would need to remember that they should not be giving financial advice to members.
When does this take effect?
The consultation period closed on 6 May 2009 and the DWP will review the responses before developing new regulations that will be subject to public consultation. The DWP is aiming for the new disclosure regulations to come into force with effect from 6 April 2010. Hopefully, before then, the potential problems will have been removed or clarified so the final form regulations can be a helpful tool designed for modern communication with members.
By Matthew Ambler, associate, Eversheds LLP.
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