The UK’s Department for Work and Pensions (DWP) is going ahead with shorter, simpler annual benefit statements for members of defined contribution (DC) auto-enrolment scheme.
DWP’s response to the consultation on proposed regulations and statutory guidance to introduce such simpler annual statements was published this week, reminding pension fund trustees that implementation of such simpler statements would improve scheme communication with members and members’ understanding and engagement.
The simpler statement should not exceed one double-sided sheet of A4 paper and should only include:
- member and pension scheme details;
- how much money a member already has in a pension plan;
- how much money a member could have when retiring;
- what a member could do to increase that money pot; and
- how to find out more about a pension plan and how a member could use their money.
The government has confirmed that these requirements do not apply to hybrid or defined benefit schemes but does encourage schemes not in scope to “apply the same principles of brevity and simplicity set out in the statutory guidance” to their own benefit statements, the response said.
The regulation is due to come into effect on 6 April 2022 and the new requirements come into force from October 2022, six months later than was initially proposed following concerns raised in the consultation feedback.
The government said the new requirements could well be extended in future as they will be subject to review every five years with the first report needing to be published before 1 October 2027.
LCP urges DC schemes to assess ESG and net zero targets
Consultancy LCP is urging defined contribution (DC) pension schemes to take more account of ESG considerations in the design of their investment funds as a recent survey revealed that nearly one in four schemes currently don’t.
The survey, which analysed 150 DC schemes, showed that while regulation and an acceleration of policy from government in the ESG and net-zero area means that 61% of respondents have included ESG factors in the design of their DC scheme’s default investment strategy, nearly one in four still haven’t.
Laura Myers, head of DC at LCP, said: “While it’s encouraging to see that the majority of schemes have taken into account ESG considerations, there is still a sizeable number that aren’t. The time really is now to review, design and set investment strategies that consider E, S and G, as the raft of policy announcements on sustainability from the government this week ahead of COP26 reminds us.”
The research also disclosed that over 60% of respondents include ESG factors in the design of their DC scheme’s default investment strategy. The survey confirms that this applies equally to DC schemes of all sizes whether own-trust, master trust or contract-based arrangements.
The survey also uncovered differences of opinion across the industry around the issue of employer responsibility for employee saving.
At one end of the spectrum, more than three in four respondents (77%) agreed in varying degrees that it is the employer’s responsibility to provide sufficient income for employees to retire. However, nearly one in four (23%) organisations ‘disagree’ that this is the case.
These differences have significant implications for scheme design, management and contribution rates, Myers said.
She believes, however, that “on the whole, schemes are heading in the right direction especially in the context of the turmoil of the last 18 months or so”.
She added: “Innovation is going to be the watchword. Those schemes that can use technology savvily to understand the membership will design investment and communications strategies that deliver the best results for employees.”