Natasha Browne asks whether trustees should communicate non-mandatory information to members
The freedom and choice reforms have been the hot topic in the industry since the Budget announcement in March 2014. Although plenty of debate has centred on which at-retirement options people will choose, one issue that has slipped under the radar is trustees' obligations on communication.
Last week, consultants warned that new information disclosure rules could be hard to keep track of because they were spread across legislation. They were issued separately by the Department for Work and Pensions (DWP) and the Treasury. Research from Professional Pensions found concern that the requirements were too complex.
While some of the rules refer to the type of information that has to be made clear to members, others confirm which disclosures have to be made between administrators. Barnett Waddingham technical manager Brian Thorne says: "These are different regulations so it's a matter of going through and ensuring that everything's been picked up."
Veratta chief operating officer Monica Cope says it is a good time for trustees to carry out an audit to ensure they are communicating on the right issues.
She explains: "This will help them understand if their current disclosure processes are right, and to help them make their schemes more effective." This can be done by simply getting the trustees around a table to discuss their procedures.
But there are issues that do not legally have to be communicated to members. Last month, the DWP published a factsheet restating its position on what is known as the ‘deprivation rule'. This is aimed at preventing people on benefits from trying to hide their pension provision.
It stipulates that anyone who spends, transfers or gives away money they have accessed through the pension flexibilities, will come under scrutiny to see if they have deliberately tried to game the benefits system.
A DWP decision-maker will be assigned to investigate the situation along strict guidelines. Anyone found to have acted in this way will see that pension money accounted for in the department's calculation of their entitlement to means-tested benefits.
Gateley partner Kate Lloyd makes the point that DWP may be using the rule to avoid a problem that has occurred in similar pension systems outside of the UK.
She says: "My understanding is that in Australia, they've had a lot of people take their pension pot, often as cash, to buy a boat or spend all of their money, and then come back and rely on the state."
But on communicating the rule, Eversheds partner Mark Latimour notes that a lot of trustee best practice goes beyond legal requirements.
He says: "I think we'll probably see a move towards including some kind of warning around this. You could take a view that it may be industry specific. So if you've got a scheme that's targeted at high income earners, what are the chances they're also going to be needing housing benefit or income support from the state?
"But of course that's not always the case so I think it's difficult to see how you would segment the market and say some people should provide the warning and some shouldn't."
Sackers senior associate Lucy Dunbar (pictured) agrees that certain trustee boards might want to flag this issue with members. This is especially relevant to schemes operating in low paid industries. But she points out the Money Advice Service's (MAS) Your Pension: It's time to choose leaflet already covers this rule.
Dunbar adds: "I'd suggest that the way to go forward is to direct individuals to the MAS leaflet, and suggest they contact Pension wise to discuss this with them."
Trustees can also ask members to tick a box saying they have discussed their options with Pension wise before making their at-retirement choices. This approach has been proposed by The Pensions Regulator (TPR) to encourage take up of the guidance guarantee.
Dunbar says: "I think this is one of the things it would be very sensible for trustees to build into their processes. The general thought in terms of behaviour is that if members are asked to tick a box confirming they have done something, then they are more likely to do it."
But lawyers also say trustees have to be cautious about communicating these types of issues. Lloyd recommends keeping information general to avoid straying into advice.
She says: "My view is the trustees should be signposting certain issues but in a very bland and general way, and a non member-specific way. And it is then down to the member to obtain their own advice tailored to their own personal circumstances.
"Trustees wouldn't necessarily know each individual member's circumstances. Obviously they will only know about the pension they are getting from the scheme, but they wouldn't know their wider financial situation."
B&CE director of policy Darren Philp notes that DWP has always had certain deprivation and capital rules concerning benefit entitlement. He says: "The new freedoms, with people being able to access their cash as they want, certainly bring this into the spotlight."
The master trust highlights to members that any decisions they make regarding their pension money could have implications for means-tested benefits. This forms part of its second line of defence process.
Philp adds: "We ask them whether they understand the implications of this, so I would imagine that this is being picked up as part of providers' second line of defence work more generally. It should also, of course, be being covered by Pension wise."
Pensions are taken into account for the calculation of entitlement to the following income-related benefits:
- Employment and Support Allowance (income-related)
- Housing Benefit
- Income Support
- Jobseeker’s Allowance (income-based)
- Pension Credit
- Universal Credit
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