The Department for Work and Pensions (DWP) yesterday (18 February 2013), launched a consultation on the consolidation and simplification of the Disclosure of Information Regulations. The proposals seek to consolidate occupational and personal pension regulations and to harmonise the requirements. Most of the changes are permissive, that is they do not have to be made, but there is one new requirement which is to provide information on ‘lifestyle’ investment (lifestyling) where it is used.
The DWP proposes that all defined contribution (DC) schemes notify members and prospective members, as part of the basic scheme information, that a lifestyling strategy will be applied to their accrued rights, and the same information will be supplied again between four months and two years before the funds become subject to lifestyling. The provisions will also apply to ‘Target Date Funds’.
The DWP intends to remove the requirement to assume the purchase of an annually increased annuity and a dependant’s pension in statutory money purchase illustrations (SMPIs). As most members buy single life level annuities, it is believed such illustrations will be more meaningful to the member. While there will be a requirement on schemes to communicate the impact of any changes they have made to the assumptions, it is unclear if this will extend to pointing out the risks of an income that may reduce in real terms.
The DWP also states that its intention is that lump sums can be included in the illustration – and it will liaise with the Financial Reporting Council to achieve this. Schemes will be able to choose the most appropriate assumptions for the member based on knowledge of their circumstances, and there will also be a facility for members to choose their own assumptions.
These changes come hot on the heels of recent amendments to the projection basis. While welcome, they do not alter the inherent impossibility of predicting the outcome from a DC pension fund, and they run the risk of detracting from the core message about the advantages of tax-efficient saving and employer contributions.
General harmonisation measures
- Where time limits on communicating with members are harmonised, then the majority will not require schemes to provide this information any earlier than is currently required. Electronic communications have been expressly permitted since December 2010. This consultation clarifies how they may operate, and proposes extending it to disclosure of information required in other DWP regulations.
- A principles-based approach to disclosure which was considered in 2009 has long been championed in some quarters, and the DWP asks if it should be considered further.
- The summary funding statement will continue to be required.
The consultation runs to 14 April 2013 and the DWP hopes the legislation will be effective from October 2013.