51: Update on DC compliance: standardised annual benefit statements and chair’s statements
On 17 May 2021, the Department for Work and Pensions (DWP) published a consultation seeking views on draft regulations and statutory guidance setting out a standard format for annual pension benefit statements. These new requirements will be introduced through amendments to the existing Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013. Initially, they will apply only to DC pension schemes used for automatic enrolment. However, the DWP will keep this under review, and is encouraging other schemes to voluntarily adopt the new format.
These changes are part of the government’s drive to improve engagement with workplace pension saving. They follow a previous consultation in 2019 on how annual benefit statements could be made simpler, shorter and more consistent in design and approach, also reflecting the increasing likelihood that members will have multiple pension pots resulting from changes in employment over their lifetime. The DWP confirmed in October 2020 that it would introduce a mandatory approach for DC schemes used for automatic enrolment.
Key features of the new format include:
- the statement must not exceed one double-sided sheet of A4 paper, unless a longer format is needed to meet duties under the Equalities Act 2010, for example, if a member requests the statement in a different format;
- trustees and managers will be required to have regard to the statutory guidance which sets out how the required information may be structured and presented. An illustrative template is included in the guidance;
- the guidance proposes five sections: member and scheme details; how much money is already in the plan; a retirement forecast; what could be done to generate increased income at retirement; and the scheme’s contact details;
- trustees and managers may use their own branding, but this should not obscure the flow of information or increase the statement’s length beyond the permitted limit; and
- if trustees or managers wish to provide supplemental material, this must be provided in a separate document to the statement. The statement must be the first substantive document presented in any pack of material.
The consultation closes on 29 June 2021 and it is expected that the new regulations will apply to annual benefit statements issued on or after 6 April 2022. The DWP has also established a working group to consider the concept of a ‘statement season’ which would require schemes to send their statements at a particular time of year.
DWP publishes outcome of review of chair’s statement
In the previous month, the Department for Work and Pensions (DWP) reported the outcome of its statutory post-implementation review of the chair’s statement, following its introduction in 2015. This review was based on discussions with pension providers and scheme members’ representatives. It has concluded that the government should work with the Pensions Regulator (TPR) to refocus the statement in order to ensure that it is achieving its aim of improving governance standards in DC schemes.
Other key points noted in the review include:
- the government and TPR should clarify the purpose and intended audience of the chair’s statement. There is little evidence that members know it exists;
- the information contained in the chair’s statement should be revisited and further work is needed between TPR, the DWP and industry representatives to ensure common agreement on content, enabling the statement to be much shorter and more focused. One suggestion is to split the statement into two areas: governance and regulatory information; and a very short document containing information relevant to scheme members;
- the government will consider whether the chair’s statement should be used by trustees to disclose whether they have requested costs and charges information using the CTI (costs transparency initiative templates; and
- compiling the chair’s statement is very costly and time-consuming, partly because of the necessity to avoid the mandatory penalties for non-compliant statements. Consideration should be given to amending legislation to allow for TPR to issue discretionary rather than mandatory fines.
Trustees of DC schemes should keep an eye on progress with these key DC governance matters and understand the implications for any of their current governance, reporting and disclosure processes.