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Defined contribution schemes

It sets out what the regulator considers trustees should do to meet those standards.

This DC regulatory guidance should be read by trustees of occupational DC trust-based schemes in conjunction with Code of practice 13: Governance and administration of occupational defined contribution trust-based pension schemes (the DC code). This DC regulatory guidance provides information, education and assistance to trustees on good practice standards of governance and behaviours which relate to delivering good member outcomes.

The DC code and this DC regulatory guidance address the DC quality features that we expect to be present in all occupational DC trust-based schemes that provide money purchase benefits.

Note: From April 2015, new pensions legislation came into force which directly affects this guidance. We will consult on any proposed revisions to this guidance in due course. In the meantime, we have produced guides that summarise the new duties for DC schemes.

You should take particular note of the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and the Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2015. This guidance should not contradict what is set out in these regulations but in any event you should ensure that you meet the new legal requirements.

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To whom is this DC regulatory guidance directed?

  1. This DC regulatory guidance applies to trustees of all occupational DC trust-based pension schemes with two or more members (whether active, deferred or pensioner) which offer the following types of benefit:
    • money purchase benefits, including additional voluntary contributions (AVCs) under occupational defined benefit (DB) trust-based pension schemes or sections, and the DC element of hybrid schemes
    • money purchase benefits with a DB underpin: we would normally expect these benefits to be treated as money purchase benefits throughout their lifetime but with the relevant DB legislation and supporting codes of practice and guidance also applied to the underpin (as trustees must ensure that appropriate funding is in place for the underpin).
  2. This DC regulatory guidance does not apply to:
    • schemes providing DB benefits only or to DB benefits in hybrid schemes
    • work-based personal pensions, stakeholder schemes or other contract-based schemes.

Terms used in this DC regulatory guidance

  1. For the purpose of this DC regulatory guidance, reference to ‘trustees’ includes trustee directors of a corporate trustee.

Trustee toolkit

  1. Trustees should also refer to our Trustee toolkit online learning resource.

How to use this guidance

  1. This DC regulatory guidance is structured as a reference document to be used by trustees to inform their actions in core areas of scheme governance.
  2. While trustees should be familiar with this DC regulatory guidance as a whole, we suggest they work through each section systematically. For example, trustees could prioritise sections of this guidance and work through the detail on a modular basis.

Investment

  1. Trustees should read this section alongside the Investment section of the DC code which provides practical guidance on areas including the default strategy and other investment options.

Note: This section outlines investment governance best practice for DC schemes.

The Occupational Pension Schemes (Charges and Governance) Regulations 2015 have introduced new rules which mean for DC schemes (subject to certain exceptions), trustees have new legal duties to carry out particular investment governance and explain how they have done so in a statement in their annual report and accounts. There are also new rules about setting the strategy for and reviewing a scheme’s default arrangement(s).

Our guide to governance standards and charge controls summarises these requirements.

Trustees should seek advice as to the extent to which these requirements apply to arrangements within their scheme.

Communicating with members about investment choices

DC quality feature

In a quality scheme, trustees will:

  • ensure that members are regularly made aware of their current investment strategy and what this means for them.
  1. Trustees should provide each member with information about the investment strategy of each fund that the member is invested in. This will enable the member to review the ongoing suitability of fund(s) selected. This includes providing up-to-date information on the investment objectives, fund performance, costs and charges of the funds and whether lifestyling applies.
  2. To help members review and understand the nature of the funds they are invested in, trustees should ensure the names of the funds are clear and the risk profile of the funds is described to make it easy for members to understand. This is important because members’ own circumstances may change, for example their attitude to risk may alter or they may change their expected retirement date. Similarly, the nature and performance of the fund(s) they are invested in may change, and the range of investment options may alter, which may mean that the member considers that another investment option is more appropriate.
  3. It is not the trustees’ role to give financial advice to members, but to ensure that quality information is provided to those members who want to make investment decisions. However, trustees may want to work with employers to facilitate access to financial advice for members. They should recommend that members consider taking financial advice when making investment decisions. Where the scheme provides access to a financial adviser, trustees should ensure it is made clear to the member who will pay for the service.
  4. Communications broadly fall into two main types: standard communications and scheme events.

Standard communications

  1. Trustees should ensure that standard communications (for example the joining pack, annual benefit statement and pre-retirement communications) contain relevant messages about investments. What is relevant may vary in different communications, for example pre-retirement communications could include information about the risks of remaining in equity-based funds closer to retirement. Where the scheme provides options relating to investment flexibility, such as the ability to switch the member pot or redirect future contributions, trustees may wish to periodically remind members of these options and the availability of alternative investment funds.
  2. Trustees should ensure that communications make it clear to members that they may incur a loss by being out of the market when switching funds. The risk profile and the costs and charges of the funds should also be presented clearly in the information provided in an understandable format. See the Governance section which addresses transparency of costs and charges.

Note: From 6 April 2015, new legislation affecting retirement processes in schemes offering DC benefits came into effect. These changes mean that there are additional requirements to communicate with members. For more information, see our guide to communicating about pension flexibilities.

Scheme events

  1. Where there is a significant change (for example to a fund’s investment objectives or costs and charges structure, the range of investment options or the profile of the default strategy), trustees should provide information to members that clearly explains the changes, any implications for members and any action that they may need to take. Members should be given adequate time to consider the changes and to take action if appropriate.

Additional information

  1. If additional information not covered in the above two categories is available to members, the trustees should ensure that it is easily accessible. Trustees will want to make sure all information is clearly signposted to members. In addition, trustees should consider whether they can provide access to other guidance, tools, online resources, mobile phone applications and other facilities to help members match their fund choice to their own circumstances, including their investment objectives and attitude to risk. Free sources of information which trustees may wish to refer members include:

Governance

  1. This section covers:
    • Value for money
    • Transparency of costs and charges for members
    • Transparency of costs and charges for employers
    • Contribution levels
  2. Trustees should read this section alongside the Governance section of the DC code which provides practical guidance on areas including conflicts of interest and relationships with advisers and service providers.

Value for money

DC quality feature

In a quality scheme, trustees will:

  • ensure that all members receive value for money.

Note: The Occupational Pension Schemes (Charges and Governance) Regulations 2015 contain specific legal requirements for trustees of DC schemes (subject to certain exceptions) to assess value for members and to explain how they have done so in a statement in their annual report and accounts. The regulations also impose a cap on the amount of charges borne by members within a scheme’s default arrangement(s).

There is a specific definition of ‘default arrangement’ in the 2015 regulations and where this applies to any of a DC scheme’s arrangements, particular statutory requirements apply.

Further information on these requirements may be found in our guide to governance standards and charge controls.

Trustees should seek advice as to the extent to which these requirements apply to arrangements within their scheme.

The sections on value for money, below, were written before the new requirements for assessing value for members came into force and are therefore not directed at assessing value for members. Trustees may nevertheless find them helpful when carrying out value for member assessments but should also seek advice.

What is value for money?

  1. A scheme offers value for money (VFM) where the costs and charges deducted from members’ pots or contributions (the costs of membership) provide good value in relation to the benefits and services provided (the benefits of membership), when compared to other options available in the market.
  2. There is no common definition of what constitutes VFM because employers, trustees and scheme members will place different values on the components within a scheme. Trustees will therefore need to exercise their judgement in undertaking a VFM evaluation exercise. As part of the assessment they should seek to understand what scheme members place the most value in when determining the overall value of their scheme and its individual components.
  3. As investment returns net of charges have such a major impact on member outcomes, trustees should pay particular attention in any VFM assessment to the investment return delivered to members.
  4. In many cases a decision to change the scheme, or elements within it, rests with the employer but trustees should nonetheless ensure that the scheme continues to offer the optimum VFM as it should have when the employer selected it. Trustees should therefore act as demanding consumers.

Assessing value for money

  1. Trustees should keep VFM in mind on an ongoing basis, including it as an item on the scheme’s risk register. Separately, they should carry out a periodic strategic review, for example every three years, following the steps outlined below. There is continuing development in the range of services and benefits offered by schemes, coupled with downward pressure on costs, reflecting technological improvements and market competition. Trustees should make sure that, to the extent that their powers permit them to do so, the scheme continues to be fit for purpose for members and competitive in relation to other options available in the market.
  2. Trustees could schedule the strategic review to dovetail with wider reviews being carried out by the employer, such as a review of the overall employee benefits programme. Trustees should take a proportionate and cost-effective approach in carrying out strategic reviews by using information which is included in ongoing reports from their service providers and publicly available information.
  3. Trustees should document the outcome of any VFM assessment as evidence of their activity in this area, noting in particular any action that they have recommended or taken. Trustees may only need to take action for one aspect of the scheme, for example where a charge for deferred members is identified as being disproportionate or the administration service or adviser’s service is of poor quality.

Model process for VFM review

Note: This process was written before new requirements came into force. Trustees should bear this in mind and be clear when they are assessing value for members under the new requirements, or when assessing value for money as part of their overall duties.

In addition, if any work is required to assess charges to comply with the new charge controls, this may be relevant to the trustees’ assessment of value for members and value for money. Trustees should seek advice as to the extent to which these requirements apply to arrangements within their scheme.

Read more information on the charge controls.

  1. Step 1: Collect information – on the total benefits of scheme membership and the total costs of scheme membership. This is likely to include the following.

Total benefits of membership

  • Investment performance – the net returns delivered to members, particularly in the default fund(s) should be assessed in the context of the investment objectives.
  • Design of the default strategy – its suitability for members and its approach to derisking.
  • Financial advice – the provision of support and information to the member on pension saving, such as online financial planning tools and a telephone helpline.
  • Support at retirement – the provision of independent financial advice or an annuity broking service.
  • Scheme administration – the type and quality of service received by the member, such as online services, and error and complaint handling.
  • Scheme governance and advice – the quality of external advice provided to trustees.
  • Scheme-specific factors – that may add value to members.

Total costs of membership

  • All member-borne costs and charges (associated with each element of the scheme) – for example, ask the service providers and adviser to complete a template summary in accordance with Pension charges made clear (the joint industry code).
  • Portfolio transaction costs – these are not generally disclosed within, for example, the annual management charge (AMC) or total expense ratio (TER). However ask for an estimate of these costs and their impact on members’ pots.
  1. Step 2: Determine criteria for assessing value for money – the investment performance delivered to members in the context of the investment objectives is likely to be critical. Understanding what members value most highly will help trustees and/or the employer to exercise their judgement. For example, they will also need to consider the profile of the membership, pot size, membership status and level of engagement.
  2. Step 3: Compare the criteria with other schemes – seek information on other similar schemes, such as their charging structures, investment performance and service provision. Downward pressure on prices is a common feature of competitive markets. Information on scheme charges and what is provided for this charge are readily available on the internet. In relation to governance, communications and charges, the criteria for the National Association of Pension Funds Pensions Quality Mark may be a useful reference tool for trustees.
  3. Step 4: Evaluate and act – evaluate the total benefits of membership and the total costs of membership of the scheme in relation to what the members’ value most, and the benefits and costs of other similar schemes. Where trustees and/or employers conclude that a scheme or service provider is not delivering VFM, they should take action.

Improving value for money

  1. Trustees can often address VFM issues such as poor quality administration or poor investment returns by raising issues and concerns directly with advisers and service providers.
  2. If, after reviewing the benefits and costs of membership and comparing these to other options available in the market, trustees consider that the scheme is unlikely to deliver VFM to members, trustees should consider action in relation to the scheme overall, and discuss this with the employer.
  3. As a consequence of these discussions, the trustees and/or employer may determine that the interests of members (both active and deferred) may be better served by:
    • requiring improved service levels
    • negotiating lower costs
    • removing unused services
    • changing provider.
  4. Where concerns about VFM relate to the provision of services and their quality, trustees should challenge their providers and advisers as negotiations may result in better VFM for members. Providers may be prepared to alter their offering in order to retain the business of the scheme.

Note: The Occupational Pension Schemes (Charges and Governance) Regulations 2015 contain an override of any scheme rules that restrict trustees to specific advisers.

  1. In some cases it may be apparent that members may be better served in a larger scheme that has the potential to deliver better member outcomes through economies of scale, professional governance and consolidated resources. This may in turn require that the existing scheme is wound up and members’ assets transferred to a more competitive arrangement. This can be a valid conclusion of a VFM evaluation provided it can be justified by the evidence.

Transparency of costs and charges for members

DC quality feature

In a quality scheme, trustees will:

  • ensure that all costs and charges borne by members are clearly disclosed to members.

Note: From 6 April 2015, the Occupational Pension Schemes (Charges and Governance) Regulations 2015 introduce new requirements for assessing costs and charges. This includes confirming in the trustee chair’s statement the levels of charges and transaction costs borne by members and whether these represent good value. Read our guide to governance standards and charge controls.

  1. Costs and charges can have a significant impact on members’ pots. Trustees should clearly present costs and charges deducted from members’ pots to members throughout their membership. They should ensure this information is readily available for those who want it (this could include making information about costs and charges available online).
  2. Trustees should disclose information about all costs and charges to members:
    • on joining
    • annually thereafter, for example in members’ annual benefit statements
    • before members carry out transactions that incur costs, for example switching funds
    • on request from the member
    • on leaving the scheme/employer – in particular, increased charges for deferred members must be clearly flagged
    • before charges or funds change.
  3. Ensure the information is in a format which:
    • sets out all costs and charges that could affect the member’s pot including:
      • costs and charges incurred in the previous year (for example, deductions from contributions and transaction costs) and, if appropriate, those which trustees expect to apply in the coming year
      • costs that only apply in certain situations, for example when switching funds
    • encourages member engagement and does not overwhelm members with extensive technical information
    • is clear, fair and balanced to enable members to make a value for money judgement on costs and charges
    • explains costs and charges
    • ensures that any consultancy charge[1], adviser charge or commission, which is deducted from members’ pots or contributions to cover the cost of advice, is clearly disclosed to members when the charge is introduced or before any change to the charge.
  4. Trustees may wish to consider whether to provide a single pounds and pence figure for total costs and charges deducted, with access to a detailed breakdown for members who wish to see how this figure is made up.
  5. Where it is too expensive or impracticable to quantify certain costs and charges, trustees should include a clear note that they exist, so that they are not hidden from members.

Transparency of costs and charges for employers

DC quality feature

In a quality scheme, trustees will:

  • ensure that all costs and charges borne by members are transparent and communicated clearly at point of selection to the employer to enable value for money comparisons to be made and to assess the fairness to members of the costs and charges.
  1. If an employer is considering whether to offer membership of an existing occupational DC trust-based pension scheme to their employees, the trustees of that scheme should ensure that they provide clear and accurate information about costs and charges to the employer.
  2. This may require trustees to liaise with the relevant adviser or provider to ensure that this information is disclosed to the employer. This will enable the employer to compare schemes, assess the value for money that the scheme offers to their workforce and select the arrangement that best meets the needs of their employees.
  3. Pension charges made clear (the joint industry code) sets out how to disclose information to employers about the costs and charges of DC schemes. Trustees should liaise with advisers and providers to ensure that the information set out in the joint industry code is provided to employers.

Contribution levels

DC quality features

In a quality scheme, trustees will:

  • ensure that schemes offer flexible contribution structures that give members the option to pay more
  • ensure that members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund.
  1. Paying enough pension contributions is one of the key elements in helping members receive an adequate income from their DC pot. Many members may need to make contributions above the minimum scheme qualifying threshold in order to help meet their retirement income expectations. Trustees should make sure that they clearly communicate this to members.
  2. Generally, the employer decides the default contribution levels for members. Where the scheme is an automatic enrolment scheme, contributions must meet the minimum scheme qualifying threshold. Many employers offer members the opportunity to vary contribution levels.
  3. Trustees should ensure that any contribution flexibility offered by the employer can be accommodated by the scheme rules and is supported by effective processes and communications to members. Trustees should encourage members to obtain financial advice and, where appropriate, take advantage of arrangements that result in higher contribution levels.

Enable members to vary their contributions

  1. Whilst discretionary, contribution flexibility options which employers may make available to members include:
    • Additional contributions: the option to make either additional monthly contributions or lump sum payments.
    • Matched funding: where the employer offers to make additional contributions when members increase their monthly contributions above the default level. These additional employer contributions may be on a like-for-like basis or may use a different ratio, for example the employer pays an extra £2 for every additional £1 paid by the member, subject to a cap.
    • Salary sacrifice: where the member can elect to give up part of their salary in exchange for the employer paying increased pension contributions.
    • Auto-escalation: where members commit to increase their contribution automatically, for example annually.
    • Reduction: the ability for members to reduce or suspend contributions if they cannot afford them.
  2. Where the employer does offer contribution structures that may be beneficial to members, trustees (and the employer) should ensure that this is clearly communicated to members. The trustees should review how many members take advantage of beneficial contribution structures offered and assess whether they need to take further action to determine why take up may be low.

Communicate effectively with members

  1. Trustees should ensure that standard communications (for example joining packs, annual benefit statements and pre-retirement communications) clearly outline to members:
    • any options for flexible contributions, as well as providing a point of contact to enable members to make the necessary changes
    • that the levels of contributions they make during the scheme membership are a key factor in determining their eventual pension income
    • the potential effects of increasing contributions as early as possible in order to benefit from compound growth potential: trustees may wish to provide an example illustration for members to demonstrate the potential benefits
    • that it is important for members to regularly review the level of their contributions to make sure they are on track to meet their retirement income expectations
    • whether financial advice is available to members to help them make decisions
    • that financial planning tools and free sources of information (such as the Money Advisory Service and the Pensions Advisory Service) may help members to decide what is an appropriate level of contributions for their individual circumstances.
  2. Trustees may wish to include information about how members can obtain a state pension statement to assist them in their retirement planning. They may also wish to discuss with the employer providing members with a Combined Pension Statement. This lets trustees combine information about members’ state pension and work-based pension in a single statement. For more information, go to the GOV.UK guide on Combined Pension Statements.
  3. Trustees should consider with employers whether other event-driven communications may be worthwhile, for example when employees receive pay rises, bonuses or promotions, their share option schemes mature or when they take redundancy.

Note: From 6 April 2015, new legislation affecting retirement processes in schemes offering DC benefits came into effect. These changes mean that there are additional requirements to communicate with members. For more information, see our guide to communicating about pension flexibilities.

Changes to contribution levels

  1. Trustees should work with payroll teams and administrators to ensure that systems and processes can effectively support the flexible contribution arrangements offered by the employer.
  2. Trustees should monitor how well the process for amending contribution rates is working. They should review periodically the levels of contributions being paid to the scheme, monitoring and reviewing any significant fluctuations in payments received and work with the employer to address any issues identified.

Footnotes for this section

  • [1] The Department for Work and Pensions have announced that consultancy charging is banned for automatic enrolment schemes but it may be present on some schemes set up prior to the ban and also apply on schemes not being used for automatic enrolment.

Administration

  1. Trustees should read this section alongside the Administration section of the DC code which provides information on areas including scheme record-keeping, data protection and processing core financial scheme transactions.

Establishing a robust retirement process

DC quality features

In a quality scheme, trustees will:

  • ensure that a process is provided which helps members to optimise their income at retirement
  • clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances.

What the retirement process should achieve

  1. All schemes should have a documented retirement process which sets out the key activities, timeframes and who is responsible for them.

Note: From 6 April 2015, new legislation affecting retirement processes in schemes offering DC benefits came into effect. For more information, see our guide to communicating about pension flexibilities.

  1. Trustees should ensure that the design and governance of the retirement process and communications to members support a good member outcome. A member is more likely to achieve a good outcome when they consider the options and products available from the scheme and the open market and the member selects the option or product(s) best matched to their individual circumstances.
  2. The decisions that members will need to take in order to optimise income at retirement begin a number of years before retirement; certainly no later than the start of lifestyling or de-risking of target maturity funds. Most of these decisions are irreversible and can be complex, and many members will come to the retirement process with low levels of engagement with pension savings.
  3. Changing working patterns, increases in longevity, low annuity rates and the availability of a greater range of retirement products mean that simply selecting a lifetime annuity at the state retirement age is by no means the only or best option. Trustees should ensure that members are made aware of the full range of options available to them, including commutation for small pots and members deferring their pension.
  4. Trustee and employer support, and effective member communications, are extremely important in ensuring that members have all the information they need to make the best decision based on their circumstances. Trustees should therefore consider supporting members by providing access to independent financial advice or an annuity broking service. They should work with the employer and provider where appropriate.
  5. Trustees should ensure the retirement process meets the needs of different categories of members, for example:
    • deferred and active members
    • members with small and large pots
    • members with multiple pots
    • members choosing to retire at different ages, including those retiring in difficult circumstances, such as ill health or financial hardship.

The importance of good quality data

  1. Trustees need to send the right pre-retirement information at the right time to the right place. To do this they need accurate data about members including dates of birth, expected retirement dates and addresses. These are ‘common data’ items which should already be present. All schemes should hold the common data items listed in our record-keeping guidance.
  2. Communications throughout the period of scheme membership should stress how important it is that members remain in contact with the scheme. Additional contact information such as telephone numbers and email addresses can be useful at retirement so as to avoid potential postal delays; an annuity purchase is often a time-sensitive purchase.

Note: Trustees need to consider when and how to communicate with members, particularly during the 15 years before their retirement. For more information, go to retirement options.

Member communications

  1. Member communications covers a number of areas. This section focuses on the first DC quality feature listed below. The remaining features are covered in detail in other sections.

DC quality features

In a quality scheme, trustees will:

  • ensure that scheme communication is accurate, clear, understandable and engaging and it addresses the needs of members from joining to retirement
  • ensure that members are made aware of their current investment strategy and what this means for them (see Investment section)
  • ensure that members are regularly informed that their level of contributions is a key factor in determining the overall size of their pension fund (see Governance section)
  • ensure that all costs and charges borne by members are clearly disclosed to members (see Governance section)
  • clearly communicate to members the options available at retirement in a way which supports them in choosing the option most appropriate to their circumstances (see Administration section).

Note: From 6 April 2015, new legislation affecting retirement processes and communicating about flexible benefits for schemes offering DC benefits came into effect. For more information, see our guide to communicating about pension flexibilities.

  1. Members’ outcomes are more likely to be improved when members engage on key issues such as how much to contribute, what fund(s) to invest in and how to draw their retirement benefits. Trustees should therefore design and deliver scheme communications to help members to understand their options and, where appropriate, to support them in taking action.
  2. If the scheme administrator issues scheme communications on behalf of the trustees, accountability for the communications remains with the trustees. Trustees should ensure communications comply with the relevant legal requirements and be prepared to challenge the scheme’s providers if they have any concerns about the quality of communications. 

Legal requirements

  1. Certain communications issued by trustees to members are subject to legislative requirements which specify the content of the communications and when they must be sent out. The key legislative requirements are outlined below.

Information on joining

  1. Trustees must provide members with basic information about the pension scheme within two months of them joining or within one month if the individual has been automatically enrolled within the pension scheme. Where a scheme offers lifestyling, trustees must explain lifestyling, when it is likely to be adopted and its advantages and disadvantages[2].

Annual information

  1. Trustees must provide most members with a statutory money purchase illustration (SMPI)[3] which illustrates a member-specific projected pension, and an annual benefit statement which provides details of contributions credited (before deductions) to the member in the preceding scheme year. This information has to be provided within 12 months of the end of each scheme year.

Information on request

  1. Trustees must provide members with certain documents on request including:
    • trustees’ annual report including the scheme’s investment report, audited accounts and the auditor’s statement[4]
    • scheme rules or other documents constituting the scheme including names and addresses of participating employers[5]
    • statement of investment principles[6]
    • ad hoc benefit statements and transfer values[7].

Lifestyling

  1. Where the scheme offers lifestyling, trustees must provide a statement between five and 15 years before the members’ retirement date that explains lifestyling and its advantages and disadvantages and when it is likely to be adopted (or that it has been adopted)[8].

Open market option

Note: From 6 April 2015, new legislation affecting retirement processes in schemes offering DC benefits came into effect. Members with DC benefits will have increased flexibility over how they take their pension from age 55 and the duties of trustees in respect of these members have changed. For more information about these duties, see our guide to communicating about pension flexibilities.

The new requirements apply to DC benefits (subject to certain exceptions). However, there are circumstances in which the existing requirements about the open market may also still apply. Trustees may wish to take advice as to the extent to which the new legislation applies to the individual circumstances of their particular scheme, and how this relates to any requirement to provide and communicate about the open market option, and/or other options, for members.

Other events

  1. Trustees must provide information to members when other specific events occur. These events include:
    • when a member is divorcing their spouse[9]
    • when a member leaves the scheme[10]
    • following notification of the death of a member (information may be required by other parties)[11]
    • in advance of and when benefits become due[12]
    • when there is any proposal to materially alter the scheme[13]
    • if the scheme winds up[14].

    Practical guidance

    Working with the employer

    1. As employees often look to employers for information, employers can play a major role in delivering successful communications. Trustees should work with the employer on a co-ordinated approach and in some situations they may wish to issue joint communications from the employer and trustees.
    2. Certain changes require the employer to consult formally with the members under the terms of the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006. In these situations, trustees need to be aware of the employer’s communications plan when they issue their own communications.

    Effective communications

    1. The legal requirements for specific communications leave considerable flexibility for trustees in how they communicate with members. Trustees should determine what the most effective approach for communicating with members is. This should take into account issues such as any budgetary constraints and the profile of members.
    2. Effective communications have a clear purpose and provide members with the information they need to make decisions. Trustees should consider what message they want to convey and what actions, if any, they are expecting the members to take.
    3. Trustees may wish to document their approach to communications in a plan which sets out their communication objectives, how they plan to achieve them and who is responsible for the different aspects of communications.
    4. Trustees should ensure communications are accurate, clear, understandable and engaging.

    Accurate communications

    1. When members join the scheme they should receive information about their investment choices, the charges and the flexibility of contributions. If the information is inaccurate, members are likely to make inappropriate decisions. Trustees should therefore take care to ensure that the factual information, including members’ personal data, contained in any member communications is up to date and correct.
    2. There may be a complex process (either manual or using an information technology solution) to incorporate relevant member data into communications and to collate them ready for despatch. Trustees should therefore ensure that there are appropriate controls and checks on this process to reduce the scope for errors occurring.
    3. Trustees should ensure that any information supplied by providers is balanced and presented fairly before they authorise its use, and when describing funds, the costs, charges and risks as well as the potential benefits should be described. When producing a statutory money purchase illustration (SMPI), trustees should use an accumulation rate appropriate to the member’s investment strategy and market conditions, and consider Financial Reporting Council guidance on providing additional information to accompany the SMPI.

    Clear and understandable communications

    1. In developing their communications, trustees should consider the following:
      • Language. The language should be appropriate for members, avoid jargon and reflect their financial literacy. The Department for Work and Pensions has prepared an automatic enrolment and pensions language guide to assist with this process.
      • Understanding the audience. Trustees should take account of the characteristics of the membership, for example their levels of financial awareness, access to technology and any disabilities or impairments.
      • Schemes with hybrid benefits. These can be complex in design so it is particularly important that trustees ensure that the scheme documentation and communications accurately and coherently explain the scheme design and benefits to members.
    2. Trustees may want to periodically check with a sample of members what they think of the standard communications such as the joining pack and SMPI. Consider, for example, member focus groups, workshops or surveys.
    3. Similarly, if a communication is dealing with a particularly complicated issue, trustees may wish to consider testing it with some members before they issue it to the membership generally. Trustees should also ensure that there is appropriate support in place to deal with queries after major communications such as the issue of annual benefit statements.

    Engaging communications

    1. Ultimately member understanding and their engagement with their savings is each member’s own responsibility. However, trustees should do what they can to attract and hold members’ attention, for example by making it as easy as possible to obtain the information they need and to implement any decisions they take.
    2. To encourage member engagement, trustees should seek to provide the right information at the right time using the right channel.

    The right information

    1. Trustees should consider the following:
      • Many members have low levels of engagement with and understanding of pensions. If they receive too much information, this can decrease its effectiveness. Trustees should keep the presentation simple and to the point. Signpost to sources of more detailed information for those members who want to access it.
      • Communications are more valuable if they provide information that enables members to understand the impact of decisions on their own circumstances. As the main aim of pension saving is to provide a retirement income, trustees should consider the best ways of demonstrating members’ projected income. Some schemes enable members to indicate their desired level of retirement income. Annual benefit statements and online systems show whether the member is on track to reach their target and whether they need to change their contribution to get back on track.
      • Remember the needs of all membership groups and think about whether to tailor communications to specific groups, for example deferred members, younger members or those approaching retirement.
      • If tailored communications cannot be sent, ensure that communications include clear signposting so that members can ignore areas of a communication which do not affect them.

    The right time

    1. Trustees should consider the timing of communications to maximise their effect. For example:
      • send out reminders about contribution levels to coincide with events such as pay increases, payment of bonuses, the end of the tax year and birthdays
      • send out communications so that they arrive on a particular day or date that is likely to increase the number of members who read it.

    The right channel

    1. Effective communication does not have to be elaborate, glossy or costly.
    2. Trustees should use the most appropriate channels of communication and, where possible, they should accommodate members’ preferences. For example:
      • trustees should consider how best to use resources such as a scheme website, email, the company intranet, webinars and podcasts, mobile phone applications and text messages
      • scheme administrators can communicate with members face-to-face or via telephone calls
      • with the agreement of employers, posters in the workplace or roadshows may be useful.

    Monitoring

    1. Trustees should decide what their objective is for each member communication, monitor how effective the communication is in achieving that objective and take action if the objective is not achieved. For example, trustees should ensure that feedback immediately after a communication is sent out is monitored in case there has been a significant level of confusion or misunderstanding about its content. In some cases, trustees may need to clarify or correct the previous communication.

    Risk management

    1. Trustees should ensure that member communications quality is an item in the scheme’s risk register. As part of a regular assessment of scheme risk, trustees should review standard scheme communications to members, for example once a year or when legislation changes, to assess the effectiveness of the communications.

    Footnotes for this section

    • [2] Regulation 6 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [3] Regulation 17 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [4] Regulation 12 of SI 2013/2734.
    • [5] Regulation 11 of SI 2013/2734.
    • [6] Regulation 13 of SI 2013/2734.
    • [7] Regulation 14 of SI 2013/2734.
    • [8] Regulation 18 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734).
    • [9] As described in the Pensions on Divorce etc (Provision of Information) Regulations 2000.
    • [10] Regulation 14 of SI 2013/2734.
    • [11] Regulation 21 of SI 2013/2734. See also Part IV of the Pension Schemes Act 1993 and supporting regulations.
    • [12] Regulation 20 of SI 2013/2734.
    • [13] Regulation 8 of SI 2013/2734.
    • [14] Regulations 24 to 25 of SI 2013/2734.