The Government is consulting on requiring a shorter simplified format for benefit statements issued by money purchase schemes used for auto-enrolment. It also plans to change the rules on permitted charges. A DWP review has found that the law in relation to chair's statements is failing to work as intended. A new working group has been established to tackle the issue of small pension pots.
Government consults on mandatory simpler annual benefit statements
The Government is consulting on mandating a shorter simplified format for benefit statements issued by money purchase "qualifying schemes", ie schemes used by an employer to satisfy its auto-enrolment obligations. The draft regulations published for consultation will require certain basic information to be provided in a statement that is no longer than a double-sided sheet of A4 paper. The Government does not intend to prohibit trustees from providing additional information to that contained in the statement, but that information must be provided in a separate document to the statement, and the statement must be the first substantive document presented in any pack of material.
The consultation includes draft statutory guidance which includes a draft illustrative two page benefit statement. Trustees are required to have regard to statutory guidance when complying with the requirement to provide an annual benefit statement.
The Government intends to bring the new requirements into force on 6 April 2022. The requirements will apply in relation to members who have not yet started to draw their benefits. The consultation closes on 29 June 2021.
Consultation on Permitted charges within Defined Contribution pension schemes
In its consultation "Permitted charges within Defined Contribution pension schemes" the Government has confirmed its proposals for the default fund charge cap, ie the cap on charges applicable to default arrangements in qualifying schemes used for auto-enrolment.
The consultation includes the Government's proposals for removing the option of flat fee charges for member pots below £100. In the interests of simplicity, the Government has dropped its proposal for tapered limits on flat fees for pot sizes over £100. The Government plans to bring in the changes with effect from April 2022 "subject to other parliamentary priorities".
The Government is seeking views on further changes to permitted charging structures. The consultation sets out a proposal for a single permitted universal charging structure for default funds of qualifying schemes used for auto-enrolment. This is aimed at allowing members to better understand and compare charges between schemes.
Consultation on incorporating performance fees within the charge cap
The Government has consulted on draft provisions to add to the existing methods by which trustees can assess whether their scheme complies with the charge cap. Broadly, where a scheme providing money purchase benefits is used to satisfy an employer's obligations under auto-enrolment legislation, trustees must ensure that no members' funds in a default arrangement are subject to charges in excess of 0.75% of funds under management.
The proposed changes will add to the existing methods by which trustees can assess fees fall within the charge cap. The changes relate specifically to performance fees and will give trustees flexibility to smooth such charges over a longer period than one year. The changes are motivated by a desire to give trustees more flexibility to invest in illiquid asset classes.
DWP review finds chair's statements failing to work as intended
A DWP review has found that the law in relation to chair's statements is failing to work as intended. The requirement to produce a chair's statement generally applies to schemes which provide money purchase benefits other than AVCs.
The review concludes that:
- the Government and the Pensions Regulator (TPR) should consider the audience and role of the chair's statement in relation to scheme governance and member communication. It is clear that the current format of the chair's statement is not working as a document for multiple audiences, ie for the trustees to demonstrate good governance of a scheme whilst also serving as a provider of information to scheme members;
- once the intended audience of the chair's statement has been clarified, the information to be contained in the chair's statement should be revisited. It suggests that one area to explore is whether the information should be divided into separate documents, one member facing and one to record "the scheme's more regulatory activity".
The review also suggests the Government should consider removing the current requirement for TPR to issue mandatory fines for non-compliance and instead allow TPR to exercise its discretion over whether to issue a fine.
New working group to tackle small pension pots problem
In March the PLSA announced that a new industry working group had been established to tackle the issue of small pension pots. The number of small deferred pension pots has been increasing since the introduction of auto-enrolment in 2012. Large numbers of small pension pots make schemes less efficient to administer and they risk being eroded by costs and charges and forgotten by members. The announcement says that the group "will direct relevant work across the industry, focusing on the administration processes that will underpin a future long-term consolidation model in the interests of savers." It will examine existing data-matching requirements, common data standards and the requirements for a low-cost transfer process for mass consolidation. The group plans to publish a progress report in the summer.