On 26 October 2017 the Department for Work and Pensions (DWP) published a consultation on improving the disclosure of costs, charges and investments in Defined Contribution (DC) occupational schemes. It is thought that up to 10 million members could benefit from the proposals[1].

Why is the Government consulting?

Existing regulations[2] require trustees of occupational pension schemes which provide money purchase benefits to calculate and assess the extent to which charges and transaction costs represent good value for members. However, trustees have faced difficulties in obtaining information on transaction costs from asset managers. From January 2018 asset managers will be required to disclose this information when requested by trustees and other governance bodies. In light of these new requirements, which should ease the information gathering process, the DWP is now consulting on regulations, which the Secretary of State has an obligation to make, requiring information to be given to members (and others) about some or all of the transaction costs of a DC occupational pension scheme and for this information to be published[3].

There is concern that understanding investment charges is not straight forward. By publicising details of the charge and transaction costs this should enable trustees, members and others to understand whether members are receiving value for money. If this information is made publicly available this may well produce better member outcomes by enabling costs and charges to be benchmarked across schemes.

The consultation is presented in two parts. The first part relates to the disclosure of costs and charges information and the second relates to the Government response and consultation on investment disclosure.

What are the proposals?

The Government is proposing:

  • to introduce regulations that will require schemes providing money purchase benefits to publish for public consumption charge and transaction cost information and to disclose this to members, beneficiaries and recognised trade unions;
  • that the information on costs and charges should be published on a similar annual cycle to the Chair’s statement on an internet site that the public can access;
  • that members must be provided with a web address where they can find information on the costs and charges for their scheme when they receive an annual benefit statement;
  • that both the Chair’s Statement and the published cost and charge information set out the costs and charges for each default arrangement and each alternative fund option which the member is able to choose from;
  • that trustees and managers should also provide an illustration of the compounding effect of the costs and charges affecting members’ pensions savings;
  • to impose a duty on trustees and managers to disclose on request, the top level of funds for which public information is available in which members are directly invested. This should be disclosed to members and recognised trade unions;
  • that the disclosure regime should look-through the ‘unit-linked contracts’ often found in pension schemes, to the first layer of underlying funds; and
  • that trustees and managers of schemes must disclose the fund holdings over the scheme year, that they must prepare the information within 7 months of scheme year end date and they must respond within 2 months of a request.

If the proposals go ahead, the changes will be introduced by the Occupational Pension Schemes (Administration and Disclosure) (Amendment) Regulations 2018 (the Regulations) with effect from 6 April 2018. Alongside the consultation, the DWP has published draft regulations and draft statutory guidance.

Which schemes will the Regulations apply to?

The requirements would apply to occupational pension schemes that provide money purchase benefits (including hybrid schemes with a DC element) with a few exceptions e.g. schemes where the only money purchase benefits are attributable to Additional Voluntary Contributions (AVCs), Small Self-Administered Schemes or executive pension schemes. Although Defined Benefit (DB) schemes are currently excluded from the proposals, the DWP has indicated that in the future, it will consider whether to extend the requirements to DB schemes.

The Financial Conduct Authority intends to consult on corresponding rules for workplace personal pension schemes and stakeholder schemes in 2018.

What happens in cases of non-compliance?

Depending on which provisions have not been complied with penalties could range from £500 up to £5,000 for an individual and £50,000 for an organisation.

The aim of the Regulations is to provide greater transparency for members and enable them to make more informed decisions without overburdening trustees. It is recognised that understanding transaction costs can be very difficult and is hoped that these new requirements will mean greater clarity as to whether members are receiving value for money. However, all of these measures do increase the workload of trustees and also increase scheme costs, particularly for schemes that do not currently provide information via the internet. The consultation closes on 7 December 2017 and can be viewed here.

[1] DWP Press Release – 26 October 2017

[2] The Occupational Pension Schemes (Scheme Administration) Regulations 1996

[3] Under Section 113 of the Pension Schemes Act 1993 (as amended by section 44 of the Pensions Act 2014)

This blog post was written by Kate Lloyd. For further information, please contact:

Kate Lloyd, partner, Pensions

T: 0121 234 0207

E: Kate.Lloyd@gateleyplc.com 


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.