DC scheme chair's statements 'increasingly complex, lengthy and unwieldy'

Aegon has warned that the “increasingly complex, lengthy and unwieldy” format of chair’s annual statements is making them less effective as a pension scheme member communication.

Responding to the Department for Work and Pensions’ (DWP) five-year review of the defined contribution (DC) occupational scheme chair’s annual statement, the provider noted that increasingly complex regulations and higher risk of being fined by The Pensions Regulator (TPR) meant trustees were adding more and more detail to the document.

As such, Aegon stated that it had become “less and less useful as a meaningful member communication” despite scheme members being the “primary target audience”.

Aegon head of pensions, Kate Smith, said: “Increasing regulatory reporting requirements and trustees fearing being fined by TPR has made the chair’s statement increasingly complex, lengthy and incomprehensible to most members.

“We are fully supportive of improving governance standards, transparency and comparability across all trust-based schemes, but don’t believe the current format of the chair’s statement is the right way to do this for members. The statutory review is an opportunity for the DWP to rethink the purpose of the chair’s statement and to make sure it’s delivering that purpose.”

She noted that the chair’s statement had become “even more unwieldy” for commercial master trusts with bespoke pension charging, as well as for default funds and self-select funds, adding that “very few, if any, members actually read the statement”.

Smith concluded: “TPR’s obligation to issue a mandatory fine, even for immaterial breaches, has led trustees to err on the side of caution and include increasing detail in the statement making it incomprehensible to most members.

“This has meant many chair’s statements are drafted with TPR as the primary audience, to avoid being fined, and named and shamed on the regulator’s website, rather than members.

“A more collaborative approach would be for TPR to introduce a yellow/red card system based on materiality of the ‘breach’. Material breaches would mean a ‘red card’, with the chair having to make any changes swiftly or face a fine and be listed on the regulator’s website. Immaterial breaches could be given a ‘yellow card’ which could be put right the following year.”

The criticism comes less than a week after LCP called for a “major rethink” of the requirements for DC pension schemes to make a chair’s statement, with the firm stating that “the language of regulators is not the same as the language of scheme members”.

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