UK - A review of the communications issued by trustees or insurers to members of defined contribution (DC) schemes has found more than half have scope for improvement, according to the Pensions Regulator (TPR).
The focus of the study, entitled 'A review of retirement information for DC members', was on current practice and compliance with the legal requirements to provide minimum standards of information six months before retirement on topics such as the Open Market Option (OMO).
Findings from the review of 97 pension funds - including 38 hybrid schemes and 8 defined benefit (DB) schemes with DC additional voluntary contributions (AVCs) - revealed 98% offered members the OMO.
However, Warren Staley, policy lead on defined contributions at TPR, pointed out there are different levels of presenting the OMO to members, and highlighted the potential for trustees to go above minimum compliance requirements and achieve good practice, as just 23% of retiring DC members took advantage of the OMO.
TPR added that while this includes members who take other retirement benefit options such as trivial commutation, the take-up is viewed as "remaining low", with Staley suggesting "this is an area we need to continue to focus on".
Figures also showed that 57% of schemes had "scope for improvement" in the standards of the information they sent to members, this included areas such as the presentation of members' options or a review of the scheme's retirement processes to consider whether it encourages members to make an active decision.
Data from the investigation revealed that 29% of schemes had reviewed the retirement processes in 2009. However, 12% had never taken a review and 19% did not know if they had conducted a recent review.
Staley said trustees need to look at whether they're being fair to all members and even monitor members behaviour on issues such as the take-up of the OMO, and look at the reasons behind it. "This is a wake up call for trustees, for them to start thinking about these things," he added.
Samples of communications requested by TPR included the 'wake-up' information pack that is issued six months before retirement, a pre-retirement letter and any other information which is issued to members approaching retirement.
The review discovered that three out of five schemes did not have acceptable material or processes, with just 37% of schemes providing 'wake-up' packs which were considered acceptable. This increased to almost half among insurer-led schemes.
Overall, the findings revealed 30% of schemes breached at least one of the DC retirement disclosure regulations, although 24% of these related to timeliness - where wake-up packs should be issued six months before retirement but instead were issued at three or four months prior to the key date.
A further 15% of breaches related to disclosure requirements and 2% to presentation of the OMO.
And just 6% of schemes were found to have "alleged non-compliance to a material extent" although they have been referred to caseworkers for further discussion.
In this instance, the schemes will be contacted for further information, as TPR noted "there may be other information and material that mitigates concerns". However, if necessary, the funds will be given a period of time to rectify the information and/or processes after which enforcement action could be taken.
Copies of the report will be distributed to the trustees of 4,500 schemes with more than 12 members to highlight the findings and encourage them to review their literature.
In the meantime, the one scheme, which refused to take part in the investigation on a voluntary basis, is "in dialogue" with TPR and has been warned that, if appropriate, TPR "may consider use of our regulatory powers to obtain information".
June Mulroy, executive director of operations at TPR, said: "Compliance with the legislative requirements is important as a minimum standard. It is encouraging to see examples of excellent practice, but we do recognise there is room for improvement. The economic downturn has had an impact on the value of many DC members' pension savings and, as such, the importance of making informed decisions is higher than ever."
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