New DC costs and charges disclosure requirements
Since April 2015, trustees of occupational pension schemes providing defined contribution (DC) benefits have been required to prepare an annual governance statement signed by the chair of trustees. This must be produced within seven months of the end of each scheme year.
Changes have recently been introduced which extend the content of the statement by requiring further details on investment charges and core transaction costs to be provided, and for the information to be made available free of charge on a publicly accessible website. The changes apply to statements prepared for a scheme year which ends on or after 6 April 2018.
The new measures apply to most occupational pension schemes which provide DC benefits but does not include those where the only DC benefits provided relate to Additional Voluntary Contributions, nor executive and small self-administered schemes.
Currently, the chair’s statement must include information relating to:
- the default fund arrangement which is used by a scheme where members have not chosen an arrangement into which they wish their contributions to be allocated;
- confirmation of whether core financial transactions such as investment of contributions, transfers of assets and member payments have been processed promptly and accurately;
- the level of charges and transaction costs which apply to the default arrangement and other investment funds available to members and how those charges represent value for members; and
- confirmation that the requirements relating to the trustees’ knowledge and understanding of applicable pensions and trust law, investment principles and the scheme’s governing documents have been met.
In addition to the existing requirements, statements prepared for a scheme year ending on or after 6 April 2018 will now need to:
- set out the costs and charges for each default arrangement and each alternative fund option which the member can select; and
- provide an illustrative example of the cumulative effect of the costs and charges on members’ pension savings.
This extends the previous disclosure provisions which only required trustees to report on the range of costs and charges where there were several default arrangements, or other funds which were not part of the default arrangement.
Once the new requirements apply, trustees are required to publish free of charge, on a publicly available website, those parts of the chair’s statement relating to the default arrangement and the level of charges and transaction costs. This includes information about the extent to which the trustees consider that the charges and transaction costs represent good value for money.
Details must be given in hard copy form if the trustees are satisfied that it would be unreasonable to require a person who requests the information in such form to obtain it online.
The information must be published in accordance with the Department for Work and Pensions’ statutory guidance.
In addition, the address of the website together with certain other information relating to access must be included in members’ annual benefit statements.
The new disclosure requirements are illustrative of a recent emphasis on the governance and regulation of DC schemes. This is not surprising in the current pensions environment where the majority of private pension savers are in DC schemes.
The earliest date that this additional information will need to be provided is 5 November 2018. Although this is still several months away, trustees should start to take steps now to make sure that they will be compliant, especially given the ever increasing vigilance of the Pensions Regulator in this area.
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