Draft Pensions Regulator guidance on flexibilities communications
The Pensions Regulator has published its Draft Essential Guide for pension scheme trustees on communicating with members about the new pension flexibilities which come into force on 6 April. The draft guidance covers changes to the disclosure regulations and the so-called “second line of defence” for pension scheme members.
New disclosure requirements
In order to ensure members are aware of the new flexibilities, new disclosure obligations are being imposed on pension scheme trustees. Trustees are, for example, required to signpost the Government’s free and impartial advice service, known as Pension Wise, in any retirement communications with affected members.
The Regulator’s draft guidance is intended to accompany these new obligations. The guidance includes a summary of the key changes to the disclosure regulations, the information which must be provided to members as a result and when this information should be provided.
The guidance also recommends that trustees obtain written confirmation from members that they have received Pension Wise guidance and so an example declaration is provided in the guidance for this purpose.
The changes to the disclosure requirements cover all members with “flexible benefits” (essentially DC or cash balance benefits). Defined benefit or hybrid schemes will also need to comply in respect of any affected members, including those who only hold DC benefits in the form of AVCs. The Regulator’s guidance will therefore be an important resource for many pension scheme trustees and it should be considered closely.
“Second line of defence”
In addition to the changes to the disclosure requirements, the Regulator’s draft guidance recommends that trustees provide generic risk warnings about each of the four main retirement options. We understand that this recommendation is intended to implement the “second line of defence” for trust-based schemes, as discussed in our February bulletin.
The generic risk warnings for each retirement option (annuity, flexi-access drawdown, cash in stages and cash all at once) will be required even where the scheme in question does not offer those options to members. Trustees should avoid giving financial advice to members in providing these generic warnings and should not provide specific risk warnings based on an individual’s circumstances.
It is recommended that trustees provide the warnings at the point where a member is required to make a final decision about how to take their retirement benefits or where the member is making a final decision to transfer to another scheme in order to take their benefits.
The Regulator recommends that trustees obtain confirmation from members that they have read the generic risk warnings prior to proceeding with the payment of benefits or a transfer request. An example of a declaration is provided in the draft guidance for this purpose.
Trustees should review the draft guidance from the Regulator and ensure that their standard communications comply with the new requirements as a minimum. It should also be noted that this guidance is published in draft form and will only be finalised by the Regulator after the disclosure requirements take effect on 6 April. Given the timeframes involved, however, trustees and scheme administrators should begin the necessary work on their member communications immediately.