Disclosure requirements and the member engagement challenge
Do the increased transparency and disclosure requirements for pension schemes enhance member engagement? Most of us living and breathing pensions in our day jobs would instinctively say “no”. The latest additions to the disclosure requirements have increased the compliance burden for schemes, but hardly engaged members at all. So, how can we turn the quagmire of pensions disclosures into a tool for engaging members?
Let’s take a quick look at the new (and new-ish) disclosure requirements
There’s been a steady stream of new disclosure requirements for pension schemes, especially DC ones, coming through into law over the last few years.
We have all started to get used to the DC chair’s statement. The first ones were required from April 2015. And, since April 2018, schemes have also had to publish the costs and charges information in these statements on a publicly accessible website and signpost their members to those websites in their annual benefit statements.
Then we had to start getting our heads around the new, ESG and stewardship focussed requirements for SIPs on both the DB and DC fronts. The first set of updates to SIPs was needed by October 2019 and the next will be required by October 2020. And DC schemes’ SIPs themselves now need to be published on websites – DB schemes have until this October.
The latest addition is the implementation statement – an annual report on how well a scheme has followed the various policies set out in its (freshly updated) SIP. Again, there’s an ESG and stewardship focus to this. The first implementation statements will be needed as part of a scheme’s first annual report finalised after 30 September 2020.
What’s the point of these disclosure requirements?
One of the central policy intentions behind these initiatives is to improve member outcomes. The increased transparency around the costs and charges members pay in DC schemes and requirement for trustees to explain how they approach their investment duties in DB and DC schemes are, ultimately, about improving member outcomes. Member engagement also supports good member outcomes.
But, so far, the primary impact of these new (and new-ish) disclosure requirements seems to have been to add to the compliance burden for schemes.
Take the DC chair’s statement as an example. Well governed and conscientious DC schemes have set up new processes (carrying quite some cost in terms of trustee time and adviser fees) to ensure they can produce compliant statements. But with TPR’s hands tied by legislation, the strict approach to compliance reviews and enforcement can result in schemes focusing overly on compliance and not necessarily on member engagement.
The member engagement challenge
There is, of course, some really good information that is and will be published by schemes as a result of these disclosure requirements. The challenge is to find ways to use this information to engage members and to help them better understand and make better decisions about their pensions.
This is an area where we can get creative and use technology effectively. A future where members of all scheme types have access to pensions dashboards, interactive apps and get nudged via their smart phones may be a little way off. But there are a number of channels already being used for delivering positive, accessible messages to members. Increasingly we see postcard summaries, email notifications of new website content, e-newsletters, social media posts and link ups with employers’ flex platforms and financial wellbeing initiatives working well for pension schemes. These can really enhance member engagement and give schemes an opportunity to use the detailed and complex information they need to report on for good.