UK regulators pushes for more employer interaction
UK - Employers are being encouraged by UK regulators to become more involved in the promotion of occupational pension schemes to employees in the run-up to auto-enrolment regulations in 2012.
A new guide published jointly by the Pensions Regulator (TPR) and the Financial Services Authority (FSA) points out that employers cannot tell members whether it is a good idea to join the pension scheme, but they can provide factual information about contribution rates and charges and retirement options to allow staff to make informed choices.
Because occupational pension schemes, such as defined contribution (DC) and defined benefit (DB), are not technically classed as regulated investments, financial advice is not regulated by the FSA as it is with stakeholder and group personal pensions (GPP).
However, TPR and the FSA warned employers they "should avoid giving financial advice and focus instead on giving the facts and generally promoting the scheme".
Employers are being encouraged to tell staff details about the available scheme, such as how they can join, the investment funds available, how much the employer contributes, as well as any investment and administration charges and who pays them.
Other areas that could be covered include general details about pensions such as the benefits of tax relief and in the case of DC schemes an explanation of the three things that influence the value of the fund at retirement - the amount that has been contributed; charge levels and investment performance - to encourage members to review whether their investments are appropriate.
TPR and the FSA emphasised that these steps are voluntarily and can be done "often at little or no cost", but would improve workers understanding of pensions and retirement planning to "avoid problems arising further down the line as a result of misunderstandings now".
The regulators also noted firms offering occupational schemes are allowed to produce their own communications, arrange presentations for staff and hold Question & Answer sessions about the scheme.
There are slightly different rules for stakeholder and GPPs, which are regulated investments, which require employers do not receive any financial benefit from promoting the scheme, and must make clear pension contributions as well as inform members that they could seek professional financial advice.
"In practice, most employers who want to promote their scheme are likely to easily meet the specified criteria, so there are effectively no barriers to employers with contract-based schemes promoting their schemes," said TPR.
The guide also tackles the issue of communicating retirement options, and in particular the use of the Open Market Option (OMO) when choosing an annuity. Potential options for employer action include arranging pre-retirement meetings and paying for access to an adviser.
Employers with an occupational DC scheme could also consider "providing a service that offers members a competitive annuity", such as an annuity broking service which tells members what providers are offering the best rates for their size of fund.
David Norgrove, chairman of TPR, said the aim of the guide is to help employers build confidence in talking about pensions - without worrying about breaching rules on financial advice - as workers consider employers to be a trustworthy source of pensions information.
"As DC becomes a more prominent part of the pensions landscape, more members will bear a greater direct responsibility for the outcome of their savings," said Norgrove.
"We hope this will encourage all employers to talk more openly and comfortably about pensions - as part of the preparations for 2012 when they will have a legal duty to enrol their employees into a qualifying pension scheme and will need to be much more engaged with the pensions they provide."
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