On the go:The Department for Work and Pensions is to publish a review of the effectiveness of defined contribution chair’s statements in April, which has prompted some specialists to call for a major rethink.
Chair’s statements are intended to provide the Pensions Regulator with the information it needs to determine whether the scheme is complying with regulations, as well as to keep DC members informed about the state of their scheme.
However, LCP has said that the single document cannot possibly hope to fulfil both functions, as the kind of “lawyer-proofed” information communicated to TPR is too dense to be of use to scheme members.
Trustees of relevant schemes are obliged to produce a chair’s statement every year explaining how the scheme is meeting certain governance standards, as well as presenting information about its default option, costs, charges, and an assessment of its value for members.
TPR will issue fines if the information is not forthcoming or if the wrong information is included, which tends to result in trustees packing their chair’s statements full of information the regulator might wish to see, but that is not relevant to or understood by members, LCP noted.
It added that these statements, which often run in excess of 10 pages in length, tend to be reviewed by lawyers but not by communications specialists, with the result being overlong documents that, in some cases, are not read by a single scheme member.
Laura Myers, LCP partner and head of DC, argued that two major changes should stem from the government’s review.
The first is that the goals of informing members and informing the regulator should be split, with schemes publishing separate documents tailored to the needs of their audience.
The second is that TPR’s mandatory fines for non-compliance should be relaxed, and a more “proportionate approach” implemented.
“It is reasonable to expect pension schemes to report back to regulators and members on how well they are being run. But the language of regulators is not the same as the language of scheme members,” Myers said.
“The threat of a fine means that chair’s statements have become compliance-heavy documents, dominated by fears of legal action, rather than an opportunity to engage with members.”
Noting that, in several cases, chair’s statements have “sat on scheme websites entirely undisturbed by members from one year to the next”, she argued that the DWP “should seize the opportunity of this review to change the rules, so that the regulator is given the information it requires in one document and members get something meaningful that will help them to engage more with their pension scheme”.
