Review of disclosure requirements – simplification?
The DWP has recently launched a consultation exercise (to finish on 6th May 2009) on the disclosure of information requirements applicable to pension schemes. By way of reminder, the disclosure requirements relate to the duty imposed upon both trustees and sponsoring employers of occupational pension schemes to disclose certain information about the scheme to members. Regulations currently in force set out very specific information which must be provided, but these requirements have been criticised as being overly prescriptive and too onerous. Simplification in this area would, therefore, be very welcome provided that any changes that are introduced genuinely simplify, rather than complicate, matters.
The background to this consultation exercise is the Deregulatory Review of Private Pensions, an independent review carried out for the DWP in 2007. This review recommended that the DWP explore a more "principles based" approach to regulation of pensions and put forward the suggestion that that this could be piloted in relation to the disclosure of information requirements. This disclosure consultation also has a wider impact in that it is intended to test, for the first time, this more general concept of introducing a more principles-based approach to pensions legislation as a whole.
Following the recommendations of the Review, a working group was set up to consider the issues. The group concluded that moving to a completely principles-based approach would make it difficult for schemes to be certain that they were acting in accordance with the principles and lead to an increase in advisers' fees. The group also thought members' rights to certain information could become unclear. This group did agree, however, that there was scope to reduce the level of prescription in the current provisions. The group also recommended the introduction of a single, high level principle that trustees should take into account members' best interests when providing them with information.
The DWP concluded that it is still necessary for many of the existing disclosure requirements to be specified, such as for information regarding members' benefits, key events in the membership life cycle, information regarding the status of the scheme and information required to be set out in legislation by EU law. The DWP also identified that the introduction of auto-enrolment in personal accounts from 2012 will necessitate the introduction of new categories of disclosures which will require to be specified in legislation.
Fortunately, however, in a move not often associated with occupational pensions, the DWP has identified some (albeit limited) scope for deregulation. It is proposed that existing disclosure requirements relating to basic information about the scheme, the annual report and the annual information required to be issued to members could be reduced or streamlined. Requirements relating to statutory money purchase illustrations have also been earmarked for reduction and streamlining.
In a more general move, the DWP also intends to generally restructure and simplify the disclosure regulations into a single set of regulations (where possible) and to specifically provide that schemes will be able to give information to members electronically via email, the internet or an intranet site. It is clear, however, that the intention is that members will still be able to request the information in hard copy. Where existing regulations require information to be provided within a specified time, the regulations will be redrafted so that information must be provided "within a reasonable period" and the intention would be that the Regulator would issue a Code of Practice regarding timescales.
The DWP has suggested that if the changes are introduced, the following high level principle could also be included in the legislation: "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 best interests". While the intentions behind this principle seem fair, our view is that this is actually a very wide statement and it would be difficult for trustees and employers to comply with it on a practical level.
Importantly, the DWP has made it clear that schemes which are already compliant with the current regulations will not be required to alter their disclosure procedures. Any proposal to simplify the existing disclosure regime is to be welcomed, particularly relating to electronic communication and fixed time limits, but the changes are limited in their extent. Although some commentators may be disappointed that a more significant move towards a principles-based approach looks unlikely, the reality is perhaps that in the case of disclosure, prescriptive requirements may be necessary and at least this means employers and trustees should be clear about the information they need to disclose to members. We will keep you updated on any progress with changes to the disclosure legislation.
Employer Debt Legislation – slow progress
In our November 2008 Bulletin, we mentioned that the DWP had launched an informal consultation process on the reform of employer debt legislation (i.e. Pensions Act 1995, section 75 debts). The problem that the consultation sought to address was the perception that corporate restructuring is being hindered by the debt on the employer legislation.
At the time, the DWP indicated that it would consult more widely and formally at a later date, with February being mooted in some circles as the likely time when the consultation would begin. At time of writing, a formal consultation exercise had, however, yet to be launched. In a speech at a recent conference, Pensions Minister Rosie Winterton mentioned that following the informal consultation last year, the DWP is working through the responses and will hold a formal consultation exercise in the spring. Ms Winterton explained that the intention is to introduce legislative changes later in 2009, provided a practical solution to the problem can be found without creating any loopholes. We will update you as soon as there is any progress to report.