On 29 April 2020, the Pensions Regulator (TPR) published guidance on communicating to members during the Coronavirus Disease (COVID-19) outbreak. TPR is placing the burden on pension plan trustees to discourage members from making rash decisions in relation to their pension savings that could have long-term effects. It will be interesting to see how The Pensions Ombudsman interprets the extent of this duty in due course.
The guidance highlights the importance of members being able to access member services and contact the scheme if they have any queries. TPR also stresses that where there are any delays or disruptions to services, members should be kept informed. Clearly trustees need to respond to member requests – however, it does not necessarily follow that a general mailing is appropriate at this time. There is a widespread concern that communicating with members during a financial crisis may actually encourage them to think about their pension options, when they might otherwise have left their savings well alone. We urge trustees to consider the best approach for their scheme – this could be a general broadcast or radio silence.
So, what should be communicated to members?
Requests for transfers out
TPR encourages trustees to read the Financial Conduct Authority’s (FCA) guidance which specifically covers risk factors in the current climate.
TPR, the FCA and the Pensions Advisory Service have provided a letter template for trustees to use when a member of a defined benefit pension scheme requests a transfer to a defined contribution pension scheme. TPR recommends that trustees actively monitor the number of requests for transfer values and which financial advisers are supporting members’ requests. Trustees are urged to contact the FCA if they identify unusual or concerning patterns.
It has been reported that since the COVID-19 outbreak, pension scam activity may have increased by as much as 400%. Given this alarming increase, it is more important than ever for trustees to ensure that they have a robust transfer out process to identify any red flags. Where a member has requested a transfer value via a third party, it is imperative that trustees send information around pension scams directly to the member.
As well as economic uncertainty, COVID-19 has brought about financial uncertainty for many members. This may lead to more members wishing to stop contributions or cease active membership altogether. It is possible to reduce contributions below the statutory minimum level for automatic enrolment purposes if the scheme rules allow – see TPR’s COVID-19 automatic enrolment guidance for more information.
Where members are considering ceasing active membership, trustees should highlight that they will lose future employer contributions and any other benefits that scheme membership provides (e.g. death in service and survivor benefits) and may not be able to re-join the same scheme on the same basis later.
However, please note that members should not be encouraged to cease active membership or to reduce their contributions so that they fall below the statutory minimum level for automatic enrolment.
TPR’s guidance notes that, given the current climate, market volatility may cause more defined contribution members to switch investments.
Where trustees are issuing communications (especially benefit statements) they are asked to bring to members’ attention what market volatility might mean for them. Although there is no legal requirement for members to take advice before switching investments within the same pension scheme, trustees may wish to encourage members to consider getting investment advice before switching funds and at the very least, notify members of the impartial guidance available from the Pensions Advisory Service.
Communications are difficult at a time when many members face both financial and emotional challenges. At the same time, pension scheme resources may be under strain. Trustees should keep member communication plans high on their agenda and review their strategy frequently – this should help to avoid (and if necessary, defend) future member complaints.