Getting the message across
New Year 2008 was intended to be the start of a new era for pensions communications in Ireland, the moment from when Irish residents would understand what their likely retirement income would be.
Legislators had intended 1 January to be the day from which all pension schemes had to provide members with a statement of reasonable projection (SORP) of their future retirement benefits. But pensions staff have now been granted a year's reprieve as officials have yet to develop guidance as to what information should be provided and how statements should be displayed.
Some in the pensions industry might welcome the delay of yet more regulation, but officials elsewhere in the arena are concerned that the complexity of delivering and maintaining member and trustee communications on pensions is already overwhelming and needs reforming.
As they currently stand, the regulations require that trustees of Irish occupational pension schemes make two key sets of information available to all members, employees who are likely to become members, their spouses, other scheme beneficiaries and the Pensions Board and trade unions. These are scheme information - about the basics of the scheme, the benefits available and its legal constitution or rules - and scheme reports - presented in the case of occupational plans as annual reports about the fund's financial status and performance.
Under the terms of the proposed changes, now due to start next 1 January, all occupational and ‘one-member' pension schemes will be required to issue annual pension benefits projections to every member based on the status of the assets no more than six months prior to the statement's issuance. The process should be relatively straightforward. But keeping track of every member and ensuring they understand what their pensions will be worth is already proving difficult.
It is an issue that pensions ombudsman Paul Kenny has flagged as potentially damaging to consumer confidence in pensions providers, whether they are occupational or insurance-based trust arrangements. In his 2006/07 annual report, Kenny alleged that the way in which pensions were communicated was "sometimes misleading" and left members uncertain of their contributions and potential benefits. He believed this is partly because trustees are so concerned about meeting their regulatory tasks that information provided is too complex to understand.
In other cases, there were simply so many holes in the information gathered and communicated that it was impossible for his team to deduce what was first promised to members, who by now may have "unrealisable expectations in their own minds" of what they will actually receive when they retire.
"There are a number of factors that bother me at present," says Kenny. "We have disclosure regulations, they give people lots of [benefits at retirement] rates and they are, in general, honoured by pension funds and complied with. But simply complying with the disclosure regulations does not guarantee good communications. Because of the problem of the weight of regulation, there is a tendency to want to tick boxes. That is all very well but if you don't stop to think whether the communication makes sense to the end user it is useless. All I can do is rap them over the knuckles. But because the [regulatory] boxes are ‘ticked', pension schemes believe their duty is done."
In 2006 the ombudsman's office dealt with more than 400 consumer cases and 3,000 telephone enquiries, a substantial number of which were driven by consumers' lack of understanding of the benefits to which they were entitled. It is partly for this reason that Kenny and his team have been trying to persuade scheme officials to work with ‘Plain English' communications bodies such as the Irish National Adult Literacy Agency (NALA) when formulating member communications.
"Organisations such as Irish Life send all their material for Plain English tests," says Kenny. "I would like to see everyone doing that as people of a certain age may not be as mentally nimble as they used to be or perhaps haven't had the benefit of secondary education. Because we have taken easy access to people for granted, communication very often takes place on a less than similar level."
He adds: "I feel one of the things that has happened is too much regulation. It is well meaning and is designed to protect members but I'm not sure whether the statement of reasonable projection serves a particularly good purpose to members. Bottom-line assumptions might look reasonable at the moment but they might not be met in practice."
eciding what information a pension scheme member should be given and how is a battle the Irish Association of Pensions Funds (IAPF) has also taken up. It believes pension schemes should make every effort to communicate with their members clearly.
Its annual pension fund survey - completed by 132 Irish schemes last year - revealed that while 93% of scheme sponsors felt they were providing "adequate communication" to members, they detected a "lack of engagement" among scheme members. It comes as no surprise, therefore, to find that communication of pension developments was listed as one of the top four priorities of sponsors, with 67% of DB scheme respondents stating it was ‘important' or ‘extremely important' while 84% of DC schemes said the education of and communication to members was "important".
That said, there is evidence of schemes going beyond the regulatory requirements, says IAPF director of policy Gerry Moriarty. More specifically, larger schemes and pension providers are attempting to condense the annual report given to members to a shorter two to three pages of vital information. But Moriarty also questions whether the pending SORP will be useful, particularly as the practice of providing such information creates differing complexities for both defined benefit and DC schemes.
He suggests that some requirements do not make sense, for example the need to show whether DB schemes are paying any pension increases from the fund or what the total amount of historical contributions might be - information which may not be available in the wake of management changes at a sponsoring employer or because the company has gone into liquidation.
"What is it worth to a person to know their total contributions to the scheme?" asks Moriarty. "It is more important to know their actual entitlement, particularly when people work short hours or when they fall in or out of contract work."
Keeping track of members' contributions when they move from one employer and scheme to another is an issue that has become especially important to occupational plans, notes Moriarty. Trustees are required to ensure they have up-to-date information on every member, whether active, deferred or retired. So with the transient nature of today's labour force, the IAPF is turning its attention to helping schemes keep track of their deferred members.
In its paper Keeping in Contact with Scheme Members, the IAPF notes that contacting members has become increasingly difficult, particularly with the number of its immigrants Ireland hosts from central and eastern Europe, who will eventually return home unaware of the pensions benefits they have left behind. Because the onus is on schemes to ensure that it can contact every member - particularly in the wake of a potential scheme wind-up where a plan has to discharge all benefits before the process can be completed - the body has proposed that scheme administrators should gather as much personal information on members as is deemed necessary to ensure they can be contacted in the future.
Some of this data is common sense, such as mobile phone numbers, personal e-mail addresses and personal public service numbers, as these are likely to remain constant. But maintaining contact with deferred members has become more of an issue following the introduction of vesting rights in the Pensions Act 1990, and subsequent improvements in 2001, which allow members to receive a deferred pension after just two years' service.
The IAPF is seeking to solve this problem by proposing to the government that some form of separate account be set up to hold the assets of those individuals who cannot be traced, transferring the assets of deferred members who cannot be traced into a central fund. The Pensions Board could provide a vital source of member information through its central scheme register.
But until immediate concerns about member communication can be solved, particularly as the SORP is the priority task, tackling vested benefits and their ownership is likely to take a back seat when the government's main aim is to ensure people understand they must do more to build a pension in the first place.