Governance, disclosure and transparency
Transparency is an increasingly important issue. It has a number of separate strands.
Pensions are becoming a consumer protection matter
The decline in final salary provision, together with auto-enrolment (which extends workplace pensions to employers that traditionally did not provide pensions) has focused more attention on defined contribution schemes. Few people in the UK understand pensions, which are becoming a consumer protection matter as a result. Employees joining a scheme because of auto-enrolment have not made an informed consumer choice. The employer will generally have selected the provider and there are no trustees with fiduciary responsibilities to members. Employees unused to financial matters find it difficult to make good investment choices, and therefore default investment choices need to be designed to provide security, growth and value. For these reasons, legislation was introduced in 2015 to improve governance and transparency – particularly on provider charges. It is expected that more will be needed (see Strategy).
In 2015, pension freedom legislation was introduced, enabling members to use their pension pot as they wish without the necessity of purchasing an annuity. Charges levied by providers on those wishing to take advantage of the new legislation have come under scrutiny. Justified or not, it is clear that the popular press is likely to keep the spotlight on fees and charges.
Employer and scheme-related events can trigger an obligation to notify the Pensions Regulator
Workplace schemes are required to disclose certain information to members, including an annual report and scheme accounts. Employers must conduct a formal consultation process with employees in certain circumstances. Both employer and scheme-related events can trigger an obligation to notify the Pensions Regulator, including for example any decision by a scheme sponsor to cease to operate in the UK. Employers are also required to disclose information to their scheme trustees that is material to the running of the scheme (see Relationship Management).
Pension freedom, a greater tendency to litigate and unrealistic expectations about the accumulated pot that can be expected from modest contributions all highlight the need for good communication.
Finally, changes to the EU IORP Directive are likely to require further change to disclosure and transparency requirements (see Governance Audit).
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