LCP calls for 'major rethink' of chair's statements

A “major rethink” of the requirements for defined contribution (DC) pension schemes to make a chair’s statement is required from the Department for Work and Pensions (DWP), according to LCP.

The firm argued that a single document could not manage to both provide information for members and give The Pensions Regulator (TPR) the information needed to assess regulatory compliance, with LCP suggesting that some schemes’ chair’s statements had been “almost entirely unread by members” and only been viewed by a handful of industry professionals.

Under the current rules, TPR is obliged to issue a fine where the timing or content of the statement does not fully meet requirements, with the firm arguing that these punishments have sometimes been imposed for technicalities in a statement’s production rather than evidence of poor governance.

LCP said that the information needed to satisfy the regulator about regulatory compliance was both “unwieldy” and unlikely to be the same material which a scheme would send to a member who simply wanted to understand more about the running of the scheme.

As such, the firm said the objectives of regulatory reporting to TPR and informing and engaging with scheme members should be achieved by two separate fit-for-purpose documents rather than combined in a single statement, adding that the process of mandatory fines by TPR for non-compliance should be relaxed in favour of a more proportionate approach.

The DWP is required to conduct a review of the chair’s statement this year, five years after the rules were first established, and the outcome of this review is expected to be published by 6 April 2021.

LCP partner and head of DC, Laura Myers, said: “It is reasonable to expect pension schemes to report back to regulators and members on how well they are being run. But the language of regulators is not the same as the language of scheme members.

“The threat of a fine means that chair’s statements have become compliance-heavy documents, dominated by fears of legal action, rather than an opportunity to engage with members. We have come across some cases where the chair’s statement appears to have sat on scheme websites entirely undisturbed by members from one year to the next.

“The DWP should seize the opportunity of this review to change the rules so that the regulator is given the information that it requires in one document and members get something meaningful which will help them to engage more with their pension scheme.”

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