Enter to open, tab to navigate, enter to select
COVID-19: Pensions Regulator issues guidance on member communications in response to emerging risks
Practical Law UK Legal Update w-025-2704 (Approx. 4 pages)
COVID-19: Pensions Regulator issues guidance on member communications in response to emerging risks
| Published on 30 Apr 2020 • United Kingdom |
On 29 April 2020 the Pensions Regulator published new guidance, Communicating to members during COVID-19.
Speedread
New guidance issued by the Regulator on 29 April 2020 sets out the steps that trustees and others responsible for member communications should take to ensure that members are informed about emerging risks to their pensions during the COVID-19 pandemic.
The guidance focusses on member communications during the pandemic and the role that trustees have to play in ensuring that members are able to make informed decisions. A key concern is that members may make an irreversible decision to transfer out of their pension scheme during this period when they would not otherwise have done so. In relation to transfers of defined benefits, the Regulator states that such transfers are "unlikely to be in the member's best long-term interests". As a consequence, the Regulator is asking trustees to send members who ask for a CETV quote a template letter, prepared by the Regulator, the FCA and the Money & Pensions Service, warning members of the possible consequences of such a decision.
Trustees should take immediate steps to ensure that their member communications comply with the Regulator's guidance.
Guidance on member communications during COVID-19 pandemic
On 29 April 2020, the Pensions Regulator issued further guidance to address the risks that the COVID-19 pandemic is posing to members' pensions.
The guidance is aimed at trustees, but also applies to others involved in member communications (such as scheme administrators and pensions managers). The Regulator expects schemes to follow the guidance, but recognises that trustees may tailor their approach to their situation and membership.
The guidance focuses on how those responsible for member communications should be communicating with scheme members during the pandemic to ensure that they are aware of emerging risks to their pension savings.
The guidance is the latest in a series of guidance published by the Regulator during the COVID-19 pandemic. For more on the Regulator's other COVID-19 guidance, see Practice note, COVID-19: issues for pension scheme trustees.
Administrative disruption
To address member concerns, the Regulator states that trustees should inform members of the steps they are taking to continue running the scheme. Members must be able to contact the scheme if they have queries, through accessible channels which reflect members' needs.
Where there are any changes, delays or disruption to member services, members should be kept informed of:
- The types of member services affected, the reason for any change, delay or disruption and the steps being taken (and timescales) to restore services to normal.
- Any temporary changes to service levels for processing member enquiries (and what these timescales are).
- If there is a delay to annual publications or member communications, a timescale of when these are expected to be published.
Transfer and benefit requests
The Regulator is concerned that as a result of the current financial uncertainty, members may seek to transfer their pension or access their funds by retiring from the scheme when they would not otherwise have done so. The Regulator points out that these are "irreversible actions that will have a lasting impact on the member's retirement benefits".
To support members to make an informed decision, the guidance states that schemes should:
- Provide appropriate warnings of the risks and implications of their chosen option. To assist, trustees are directed to Financial Conduct Authority (FCA) guidance to help them outline the relevant risks.
- Encourage members to take regulated independent financial advice to understand their options. Schemes should also encourage members to ask questions of their financial adviser to identify any increased risks associated with how the member has decided to access their pension fund. (The guidance links to the FCA's guidance on what to ask an adviser.)
- Highlight the free and impartial pensions guidance offered by Pension Wise.
Specific guidance on DB to DC transfers
The guidance sets out additional steps schemes should take in relation to DB to DC transfers. The key requirement is that schemes should issue a template letter (from the Regulator, the FCA and the Money & Pensions Service) to all members requesting a CETV quote "for the foreseeable future". The template letter warns members that although they may have a statutory right to transfer, transferring out of a DB scheme is irreversible and unlikely to be in their best interests. Such members would also lose the protection offered by the PPF if their employer were to become insolvent. The letter recommends that all members get advice or guidance before making a decision.
The Regulator also states that schemes should monitor the number of CETV requests and which advisers are supporting the members' requests. They are asked to report any unusual or concerning patterns (such as spikes in CETV requests or the same adviser across many requests) to the FCA.
Stopping contributions or ceasing membership
Where members ask to cease membership, trustees should inform them that they:
- Will lose future employer contributions and may lose other scheme benefits, such as death in service and survivor benefits.
- Can contact the Pensions Advisory Service for guidance.
As the pandemic is brought under control, the Regulator suggests that schemes contact members who left to remind them of any rights they may have to opt-in or re-join the pension scheme.
Pension scams
As the "first line of defence" in protecting savers, the guidance states that trustees should:
- Help members be aware of the warning signs of a scam (be "ScamSmart").
- Always do due diligence when a member asks to transfer their pension and use the Regulator's scheme transfer checklist.
- Follow the Pension Scams Industry Group (PSIG) code of good practice and the steps contained in that guidance for carrying out due diligence and assessing transfer requests.
- Direct savers to the Pensions Advisory Service website for guidance on how COVID-19 may have affected their pension.
- Refer to the Regulator's COVID guidance on DB funding when dealing with DB CETV requests.
DC investments and market volatility
To address member concerns about investments, schemes are asked to highlight a number of issues in any annual benefit statements or statutory money purchase illustrations they send out in the next few months. These include:
- What current market volatility might mean to members retiring over differing future time periods.
- The need to think carefully and consider getting investment advice before switching funds in the current market.
- The danger of scam activity in the current climate.
- The availability of free and impartial guidance from the Pensions Advisory Service.
Comment
In light of this guidance, trustees should take immediate steps to ensure that their member communications comply with the Regulator's requirements. In particular, trustees of DB schemes should ensure that members who request a CETV are sent the Regulator's template letter. They should also ensure that they have in place procedures to monitor CETV requests and report unusual patterns to the FCA.