A Lawyer's Perspective from Sackers
The recent increased focus on DC benefits, together with advances in technology, has led to the rapid growth of pension communication tools and services. Many of these are designed to educate employees so that they will make better pension choices.
Lawyers are not typically brought within the inner circle when a communication strategy is first discussed. However, it can save time and costs to do so – lawyers often spot potential pitfalls before they happen and have lots of valuable experience that trustees and employers can use to their advantage.
There are six key things that you need to know about legal obligations and communications:
Although it is useful for the employer and others to provide input on the scope, content and timing of communications, the ultimate responsibility rests with the trustees. This extends to the provision of materials on a scheme website and in an administrator’s retirement packs, just as much as formal scheme announcements issued by the trustees. For that reason, trustees need to know what information is being published in their name by third parties such as the employer, administrators, investment platform providers and annuity brokers and keep it under regular review.
It is tempting to fall into the trap of reviewing communications piecemeal and in isolation, as and when specific projects come up – for example, trustees might just review the new joiner materials if a large number of members are due to join at an auto-enrolment date. There is nothing legally wrong with this approach but it leaves potential communication gaps in the member journey through the scheme. This in turn brings a risk that members could make the wrong choices in the absence of key information, leading to poor member outcomes and a claim against the trustees (at a much later date). Being able to demonstrate that an important piece of information would have been received by the member at the right time and in the right format will help members achieve a better outcome and protect the trustees against spurious complaints in future years.
With an increasing reliance on electronic forms of communication, you could be forgiven for thinking that any trustee is permitted to communicate with its members by email and website rather than on paper. However there are hurdles that trustees need to go through in order for that to be effective, which include compliance with disclosure regulations and data protection legislation. Legal advice is needed to make sure that any particular legal requirements are met.
Forthcoming changes to data protection legislation which take effect from May 2018, mean that trustees will need to be very careful when scheme data is transported to different parties, situated in different places, and for different purposes. This includes, for example, an administrator using an overseas sub-contractor to send out annual benefit statements. Trustees must make sure that they do this in the proper way, with adequate data security measures and to do that they will often need legal advice.
Complicated information often needs to be condensed into short and understandable form for members. Communication consultants have fantastic tools and ideas for achieving this and there are some really good examples of member communications now available. However, before they are finalised, it is important to obtain a legal view that the communications meet disclosure and regulatory requirements, however frustrating those may be. These requirements do change from time to time and need to be kept updated, for example references to financial guidance, and retirement risk warnings need to be in line with the latest thinking which is changing over time.
As a golden rule; the trust deed and rules should take priority over any conflicting information that may be provided in any scheme communication. It is good practice to confirm this in each member communication so that there can be no misunderstanding about this at a later date.
The key is to use your lawyer wisely, at the beginning of a project and at the end of a project to make sure that you set out on the right track and that at the end of the day the ultimate communication that has been drafted ticks the boxes from a regulatory and legislative perspective. It can be very costly if communications get things wrong in this respect, and it will not always be apparent immediately as members could come back to the trustees years later to complain. It is therefore something worth getting right and investing time in at the start.
The Pensions Regulator’s DC Code published in the summer of 2016 was accompanied by guidance specifically dealing with communications. This is worth reviewing to make sure that the trustees are following best practice and are keeping their own scheme in line with the Pensions Regulator’s expectations.