Sadly, the uncertainty surrounding COVID-19 is creating ideal conditions for scam activity to multiply. It may also lead pension scheme members to make rash decisions which they later regret. In response to this, the Pensions Regulator has today published further guidance on its COVID-19 hub on communicating to members during COVID-19.
The guidance highlights important information that should be provided to members of defined benefit (DB) and defined contribution (DC) schemes who request a transfer or who may want to access their benefits and to members who may want to cease contributions or leave their scheme. This includes a new letter (signed by the FCA, the Pensions Regulator and the Money and Pension Service) warning DB members about the risks of transferring out of their scheme at this time. Trustees should take immediate steps to ensure that this letter is sent to all members who request a transfer quote, otherwise the scheme may be held liable if things go wrong.
Trustees should also take immediate steps to:
- review their member communications in light of this guidance to ensure that they cover the points highlighted by the Regulator wherever relevant, and
- ensure that when they are communicating with members the channels used (eg telephone, email, webchats etc) are accessible and reflect members’ needs.
DB to DC transfers
Today's guidance sets out additional steps which the Regulator expects trustees to take in relation to DB to DC transfers:
- Trustees are required to issue a new template warning letter (issued jointly by tPR, the FCA and the Money and Pension Service) to all members who request a cash equivalent transfer value (CETV) quote from a DB scheme, for the foreseeable future. Trustees should contact their scheme administrator immediately and take steps to ensure that this letter is sent to relevant members promptly, including members that are already in the process of transferring out and those that request non-statutory transfers.
- In addition, trustees should actively monitor the number of requests for CETV quotes, and if there is an unusual pattern such as a spike in requests, contact the FCA on DBTransferSchemeInformation@fca.org.uk.
Trustees of some DB schemes may have already decided to temporarily suspend transfer payments from their scheme following the Regulator's previous guidance on suspending DB transfers issued on 27 March 2020 and in light of the heightened risk of pension scams and the the challenges created by COVID-19.
Trustees that have decided to continue transfer payments should review this decision in light of this new guidance and keep that decision under review.
Further information on suspending transfers can be found in our blog on the Regulator's previous guidance.
DC schemes
The Regulator is aware that members of DC schemes might consider transferring their pension due to the current financial uncertainty around investments, or to access their funds by retiring from the scheme when they wouldn’t otherwise have done so. These are irreversible actions that will have a lasting impact on the member’s retirement benefits.
The Regulator expects trustees to be alert to the risks associated with these decisions and to help their members make informed choices by:
- providing appropriate warnings of the risks and implications of members' chosen option
- encouraging members to take regulated independent financial advice
- encouraging members to ask questions of their financial adviser to identify any increased risks associated with how the member has decided to access their pension funds, and
- highlighting the free and impartial guidance available from Pension Wise.
The Regulator also expects trustees to read the FCA's guidance on DB transfers, so that they are aware of the sorts of risks they should be highlighting to members.
As far as DC transfers are concerned, it should be noted that the Regulator's easement which allows trustees to suspend transfer values does not apply to DC schemes. Therefore, CETVs must continue to be paid by such schemes within the relevant statutory deadlines where a valid transfer request has been received.
Service disruption
Where there are any changes, delays or a disruption to member services, trustees should keep members informed – for example, via notices on the scheme’s website, acknowledgment replies to emails or recorded messages on call centre numbers and, if considered necessary to reach certain members, posting communications.
In particular, schemes should inform members of:
- the types of member services impacted, and reasons for any change
- the steps taken to restore normal services and the timescales involved
- if there are temporary changes to service levels for processing member requests and what the new timescales are, and
- if there are delays to annual publications or member communications, a timescale for when these will be published.
Stopping contributions and ceasing membership
Where members wish to stop contributions and cease membership, trustees should make them aware that they:
- will lose future employer contributions, and
- may lose benefits that the scheme provides (such as any life assurance benefits that are linked to scheme membership).
Member should be told that they can contact the Pensions Advisory Service for guidance. In addition, as COVID-19 is brought under control, the guidance suggests trustees contact members who have left the scheme and remind them of any rights they have to opt-in or re-join the scheme.
Pension scams
The guidance highlights how trustees can protect members by:
- making them aware of the warning signs of investment and pension scams (see ScamSmart)
- carrying out due diligence when a member requests a transfer using the Regulator's scheme transfer checklist
- following the Pension Scam Industry Group code of good practice
- directing members to the Pensions Advisory Service's website for guidance, and
- referring to the Regulator's COVID guidance on DB funding when dealing with DB CETV requests.
DC investments and market volatility
Finally, where trustees are contacting members in the coming weeks, for example by issuing annual benefit statements or statutory money purchase illustrations, the Regulator encourages trustees to reassure and protect members by highlighting:
- what current market volatility might mean to members retiring over different future time periods
- the need to think carefully and consider getting investment advice before switching funds in the current market (to avoid crystallising losses)
- the danger of scam activity in the current climate, and
- the guidance available from the Pensions Advisory Service.
Immediate actions
In response to this latest guidance from the Regulator, trustees should take immediate steps to:
- ensure that the new warning letter is sent to all members who request a transfer quote from a DB scheme
- review their member communications to ensure that they cover the points highlighted by the Regulator wherever relevant, and
- review the channels that they use to communicate with members to ensure that they are accessible, reflect members’ needs and that they can handle any surges in demand.
Further information on the actions that trustees and sponsors of DB and DC schemes should be taking in response to COVID-19 can be found in our COVID-19 checklists:
COVID-19: Key actions checklists for trustees and sponsors of DB schemes
COVID-19: Key actions checklists for trustees and employers of DC schemes
Latest news
Follow the latest news on the impact of COVID-19 on UK pension schemes and sponsors on our UK pensions blog. For updates on the wider impact check out HSF’s COVID-19 hub.
To keep up to date with the latest COVID-19 pensions-related guidance click here.
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.