My Lords, I agree that, for CDC schemes to be a success, a high degree of transparency and effective communications are key. If we want to foster member trust in this new provision in the UK, the full scope of risk and benefits of collective schemes must be clearly communicated to members and others, particularly highlighting the nature of benefits, their potential fluctuations and that they are targeted. I mentioned this at Second Reading.
I have already shared with noble Lords a draft illustrative statutory instrument. Paragraph 32 gives examples of the documents and information we plan to require CDC schemes to publish. This includes documents that relate to target benefits, including the actuarial valuation and a statement informing members and prospective members that benefits may be adjusted based on the actuarial valuation and are not guaranteed. We will also require CDC schemes to publish their scheme rules, which will include details of benefit design.
In addition to those regulations under Clause 46, the existing disclosure requirements under Section 113 of the Pension Schemes Act 1993 that currently apply to money purchase occupational pension schemes will apply to CDC schemes, as they are a subset of money purchase benefits. This covers targeted individual member information, and we intend to amend the existing
disclosure regulations under Section 113 of that Act to ensure that, for CDC schemes, such information includes key risk messages about benefit fluctuation; for instance, providing full details regarding the possibility of benefit fluctuation at the point of joining in scheme information; emphasising that benefits can change in the member’s annual benefit statement for active and deferred members; being clear that benefits can change during retirement in retirement information packs; and notifying members in advance of any change to their rate of benefit during retirement.
I appreciate the intention behind the noble Lord’s suggestion but, if this amendment stands, all documents and information published would need to include a risk warning message, which would not be relevant in all circumstances; for example, in the scheme’s statement of investment principles. I suspect this would also not meet the noble Lord’s intention that such messages be included in other important communications also made under existing powers. I believe that the best way to approach these concerns is to set out the required information in regulations, as I have indicated, as this would allow the Government to work with the pensions industry to ensure that relevant targeted messages are developed for each relevant document or piece of information.
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The noble Lord, Lord Vaux, mentioned Holland, communications about pensions and the target not being a guarantee. Communication issues in Holland occurred mainly because, for many years, the Dutch system worked as though benefits were guaranteed. When adjustments needed to be made, they came as a surprise. We will ensure that CDC schemes must make it clear and transparent in their member communications that benefit values may go down as well as up, particularly at key points throughout the member’s pension scheme journey, at joining, and annually both before and during retirement. In addition, one of the authorisation criteria requires that the regulator is satisfied that there are adequate systems and processes for providing information in relation to scheme members and others.
The noble Lord also made a point about informing people properly about the risks in CDC schemes. This will be made clear and transparent in key member communications at points throughout their pension scheme journey. Regulations under the Bill and under existing regulation-making powers in the Pension Schemes Act 1993 will be made to require CDC schemes to, for instance: publish a clear statement and the scheme rules on the scheme website; provide full details at the point of joining; emphasise benefit changes in the member’s annual benefit statement for both active and deferred members; be clear that benefits can change during retirement in their retirement information packs; and notify members, in advance, of any change to their rate of benefit during retirement. Members and other interested parties will also have access to scheme documentation that must be published on the scheme’s website—for instance, the scheme’s annual actuarial valuation.
I assure noble Lords that, as occupational pension schemes, CDC schemes are already subject to a broad range of regulatory disclosure requirements, including
the provision of key information to members on joining and at retirement, as well as annual statements. The intention is to use regulation-making powers to adapt or supplement those requirements, allowing for these and other relevant matters to be set out in detail for CDC schemes. We want to consult thoroughly on these important provisions to ensure that we get them right.
I am pleased to confirm for the noble Baroness, Lady Bowles, that HMRC is looking at her point and will bring forward its own legislation. We will consider the communications on that.
For the reasons I have explained, I believe that our favoured approach provides a more targeted response while still ensuring that members are protected. I therefore urge the noble Lord, Lord Vaux, to withdraw the amendment.