While designed to boost member understanding, published statements of investment principles could muddy the waters and put members off altogether, says Anna Copestake.
There is an emerging trend to require scheme information to be published online. It started with parts of the defined contribution (DC) chair's statement and by October 2021 will include most defined benefit (DB) and DC schemes' statements of investment principles (SIPs) and investment implementation reports.
One of the main goals, so we're told, is to empower members. To engage them, enable them to ask questions and allow them to understand if they could do better elsewhere in the market. These are aims I fully support. But as we often do in pensions, we're running before we can walk.
There's an inherent tension in writing something that tries to be all things to all men, but that's what we're asking trustees to do. We should start again when it comes to disclosure. Yes, some of the requirements have been imposed by EU law, but not all and why can't we strive to do better? We should separate out what members need to be told, what trustees need to report to keep them true and what regulators need to see. It might put scheme resources to better use and ultimately deliver greater value to members.
Let's start with the fact that nowhere in the legislation does it say that the SIP, DC chair's statements or implementation reports must be written for a member audience. This ‘requirement' appears in parts of The Pensions Regulator (TPR) guidance and Department for Work and Pensions (DWP) consultation responses.
The content of these documents is prescribed by statute. What they must contain is pretty sensible from the point of view of scheme management. But how useful will members find it? Generally it's quite specific stuff. Schemes aren't required to provide any context and most members won't know how to use the information. It's very optimistic to think members can, or will, compare the information between schemes via some avid ‘googling'.
Let's not kid ourselves, the first people to read updated SIPs and new implementation reports will be policymakers, regulators and lobby groups. Most trustees know this. That may be no bad thing, ensuring that trustees take these reporting duties serious. Yet this group of people will subconsciously become the initial target audience.
In this respect we can learn a stark lesson from DC chair's statements. They are laborious documents that, albeit helpful for regulatory oversight, are pretty useless for members. This is due, in part, to the way they attract a mandatory penalty for sometimes minor discrepancies. Yet the fact SIPs and implementation reports are subject to a discretionary penalty regime won't automatically avoid a similar fate.
The rightful focus on trustee investment decision-making at the moment will drive a nervousness about compliance. For all the positives that go with that, it will also result in a variety of undesirable outputs if your goal is to communicate with members. These range from generic ‘tick-box' approaches, technical tomes or scant attempts at minimum compliance. It's going to be hard for members to understand what's going on under the bonnet of the scheme. It may put them off trying to understand their pension altogether.
So what should we tell members? I'm no communications expert, but surely a trustee policy, a regulatory report and a member communication should look and feel very different. It's the disclosure rules that are muddying the waters.
We've recently seen the DWP consult on the simpler annual benefit statement, implicitly accepting that current statements aren't quite hitting the mark. If we aren't communicating basic information clearly how confident are we about the more difficult stuff? Is pushing more ad hoc technical information helping?
Understanding DC cost and charges and how pension savings are invested can reap rewards for both the saver and the scheme. Answering member questions can create useful moments of reflection for trustees. Building member engagement can ultimately result in better member decisions at key decision points. With all this at stake, it's important to get it right.
Anna Copestake is partner at Arc Pensions Law
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