Your Right to Know
Members of a Stakeholder scheme have the right to a comprehensive array of information. Most members of pension schemes are either unaware of their rights or fail to exercise them. The following list is not intended to be comprehensive but details the main areas of information that members are entitled to, either automatically or on request. If it is not stated that the information is only provided on request, it can be assumed that it should be supplied automatically.
Stakeholder schemes can be set up under the regulations
which relate to occupational schemes or to personal pension plans. As
the vast majority of schemes will be approved under the rules relating
to personal pensions, it is these rules which we have detailed below.
Annual Statement
Contributions
Basic Information
Payment of Benefits
Changes
Documents
Wind-up
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Annual Statement
The most important item of information you must receive is an annual statement.
This must be sent to you within three months of the end of the scheme
year.
It has to contain the following information:
- the value of your fund on the day before the first day of the statement year
- the value of your fund on the last day of the statement year and the amount of any investment gain/loss coming from that year.
- details of your contributions
- details of any employer's contributions
- payment of tax relief by HMRC
- payment of any contracted-out rebate made on your behalf
(this is a rebate due to being contracted-out of the State Second Pension) - your date of birth together with details of any age-related rebate due to being contracted-out
- any amount transferred from a previous scheme, including the
date it was received and the name of the scheme
any amount debited/credited as a result of a pension sharing order made under a divorce agreement - the amount deducted from contributions towards payment of the scheme charge
- any other deductions.
- Government regulations now require your pension provider to include in your annual benefit statement an illustration of the pension income you might expect in retirement. This will take into account how inflation between the date of the statement and your expected retirement date could reduce the buying power of your pension income.
- Six months before your retirement age you will be sent details of your benefit options.
Statutory Money Purchase Illustration
Regulations
introduced with effect April 2003 mean that Annual Statements issued to
nearly all types of money purchase pension arrangement must include projected
pensions given in "real terms" (this does not apply to Section
226 Retirement Annuity Contracts or Section 32 Buy-out Policies).
The intention is to allow for the impact of estimated future inflation on the projected pension between the Annual Statement date and the normal retirement date, thus giving figures in today's value.
A single assumed future growth rate will be used to provide one pension figure, which is in turn assumed to increase in payment by the rate of inflation, and will continue to be paid to a surviving widow(er) at 50% of the level.
With a member's permission, the pension scheme may approach the Department of Work and Pensions to obtain details of that member's estimated State Pension entitlement, and include this information in the Annual Statement. This is called a Combined Forecast.
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Contributions
If your employer is deducting contributions from
you to pass over to the provider, this must be done by the 19th of the
month following their deduction from your wages. If this is not done,
even if it is only 1 day late, the provider must report the matter to
the regulatory authority, the Pensions Regulator.
If any payment is late by 60 days, the provider must write to inform you of this. This must be done within 90 days of the date when the payment was due.
If your company is making contributions to your scheme, then these must also be paid over by a date specified by the employer. If, having specified a due date, the contributions are paid late, the same reporting requirements apply as specified above for your own contributions.
If your employer is deducting contributions, you must
be given written details of how the deduction arrangement works. This
will include how frequently you can change the amount of your contribution
(it should be allowed at least every six months) and what notice is required
to stop contributions (this cannot exceed the end of the pay period following
the one in which the request is made). The employer must provide this
information within 2 weeks of receiving your request to commence payments
to the scheme.
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Basic Information
- The address to which enquiries about the scheme should be sent.
- The names and addresses of the scheme's trustees or managers.
- The conditions of membership.
How and where copies of documents constituting the scheme can be purchased and inspected. - Whether or not the scheme is contracted-out of the State Second Pension.
- Whether it is approved by HMRC.
- How tax relief on your contribution is effected.
How contributions are paid to the scheme. - A summary of the conditions of the scheme which govern the payment
of benefits from the scheme or the payment of a transfer.
A summary of the scheme's investment policy. - Illustrative estimates (clearly labelled as such and stating the period for which the they will be honoured by the scheme) of the transfer values of protected rights (these are funds built up from contracted-out contributions) at the end of each of the first 5 years of membership.
- The basis on which any charges are made by the scheme to meet administrative expenses, pay commission or any other costs.
- A statement that The Pensions Advisory Service is available
at any time to assist members and beneficiaries of the scheme in connection
with any:-
- pensions query that they may have/or
- difficulty which they have failed to resolve with the trustees or administrators of the scheme,
- and the address at which The Pensions Advisory Service may be contacted.
As part of the sales process you must be furnished by the provider with a Key Features document before you sign up for the scheme. This sets out important details about that provider's stakeholder pension.
Once you have signed up to a specific scheme, the provider must write to tell you that you have 30 days in which to cancel the sale, if you change your mind.
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Payment of Benefits
Information about benefits due to you from your
stakeholder scheme must be provided in the following circumstances:
Upon retirement
You must be furnished with details of the options
available to you upon your retirement at least 4 months before your expected
date of retirement. Most personal schemes will require you to nominate
this date at the time you join.
The earliest that this date can be is your 50th birthday (55th from 2010) and the latest
is your 75th birthday.
One of the options open to you is to take part of your retirement savings as a lump sum which is tax free. The most you can take in this way is 25% of your accumulated fund. The remainder of your retirement savings must be used to provide you with an income during your retirement.
This can be done by buying an annuity or simply drawing income out of your fund through a process known as Income Drawdown or Income Withdrawal.
There are other options available to you. You don't have to take all of your benefits at the same time. This could be useful if you are continuing to work on a reduced basis.
You also ought to consider what provision you may need to make for your spouse, partner or dependants.
Because of the range of choices open to you and the importance of the decisions you make, you would be advised to get independent financial advice.
You don't have to retire at the age you have nominated. You can retire at any age if you are in ill health and can produce evidence that you will not be able to return to work due to illness or injury.
If you have nominated a retirement age later than 50 (55 from 2010) but decide to retire earlier, then you need to give notice of this to the trustees or scheme manager. If you give them the notice within 5 months of your nominated retirement age, they have to provide your options within 1 month of receiving your notice.
Death
Upon the death of a member of, or beneficiary under,
a scheme, any rights and options due to any person as a consequence must
be quoted as soon as practicable and not more than 2 months after notification
of the death.
Ceasing to contract-out
If you have been contracted-out of the State Second Pension through
your stakeholder scheme but give notice that you wish to cease to contract-out,
the trustees or managers must provide you with information about your
protected rights fund within 3 months of being aware of the notice. This
includes the value of your protected rights fund and the options available
to you.
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Changes
Members of a stakeholder scheme must be
notified in writing:
- any change in the scheme's rules or practice regarding charges. This must occur within one month of the change.
- if the scheme loses it's approval as a stakeholder scheme. This notification must be provided within 2 weeks of the manager or trustees of the scheme being informed of its removal from the stakeholder scheme register.
- any change in relation to the scheme that will result in a material
alteration in the basic scheme information set out above. The notification
must be made at least 3 months before the alteration is intended to
take effect.
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Documents
There are a number of documents that you have a
right to a copy of but only if you request it. With the exception of the
latest scheme annual report and the annual declaration, you can be charged
for the copying, posting and packing of the documents, though the trustees
or managers must, if your prefer, make a free copy available for inspection
at a convenient place. You must be provided with a copy of the document
within 2 months of the request being made. Principal among these are:
Scheme Documents
If you ask for it, you are entitled to receive
a copy of the documents which govern the constitution and operation of
the scheme. These would normally comprise the trust deed, the rules and
any amending deeds.
Scheme Annual Report
Schemes which are set up under trust (many stakeholder
schemes will not be set up under trust) must produce an annual report,
within 7 months of the end of the scheme year, which will contain:
Miscellaneous information
- the names of the trustees (where the trustee is a company, the names of the directors must be given) during the scheme year to which the information relates.
- the provisions of the scheme in relation to the appointment of trustees and their removal from office.
- the names of the professional advisers and of such banks, custodians, and other persons and organisations who have acted for or were retained by the trustees during the year, with an indication of any change since the previous year.
- The address to which enquiries about the scheme generally or about an individual's entitlement to benefit should be sent.
- The number of beneficiaries and active, deferred and pensioner members as at any one date during the year.
Financial information
- a copy of the audited accounts and the auditor's statement.
- A statement as to whether the accounts have been prepared and audited in accordance with the appropriate regulations.
- If the auditor's statement is negative or qualified, an account of the reasons why and a statement as to how the situation has been or is likely to be resolved.
- If such situation as is mentioned in the previous paragraph was not resolved in a previous year, a statement as to how it has been or is likely to be resolved.
Investment information
- Who has managed the investments of the scheme during the year and the extent of any delegation of this function by the trustees.
- That the trustees have produced a statement of the principles governing decisions about investments for the purposes of the scheme in accordance with section 35 of the 1995 Pensions Act and advising that a copy is available on request.
- Unless all the scheme benefits are secured by insurance policies or annuity contracts, a statement about the trustees' policy on the custody of the scheme assets.
- An investment report containing:
- a statement by the trustees or the investment manager providing details of any investments made during the year that were not in line with the scheme's statement of investment principles;
- if any such investments were made during the year (or were made in a previous scheme year and continued to be held at the end of the year), a statement by the trustees or investment manager giving the reasons why and what action, if any, has been taken or is proposed to be taken to remedy the position; and
- a review of the investment performance of the fund during the year and also for a longer period of between 3 and 5 years (unless the scheme has existed for less than 3 years), including an assessment of the nature, disposition, marketability, security and valuation of the scheme's assets.
Statement of Investment Principles
The trustees or scheme manager must put in writing a statement of the
principles governing decisions about investments which must cover, among
other things -
- The policy for complying with the need for diversification of investments
- The policy for ensuring the suitability of investments
- The arrangements for obtaining advice on the suitability of investments
- The kinds of investment to be held
- The balance between different kinds of investment
- Their approach to risk
- The expected return on investments
- Their policy for the realisation of investments
- The extent to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments
- The exercise of the rights (including voting rights) attaching to investments.
- You are not entitled to a further copy if it is less than 12 months since you were last provided with a copy.
Record of Payments Due
Where the company has to make a stakeholder scheme
available to all or some of its employees, the employer must ensure that
there is prepared, maintained and from time to time revised, a record
which shows the rates and due dates of contributions payable both in respect
of deductions from employees and any payments the employer is making on
the employee's behalf.
You can request a copy of this record.
Annual Declaration
The Pensions Regulator has withdrawn the requirements to submit annual declarations and accompanying documentation for stakeholder schemes. Reporting accountants will still be required to produce the declarations in line with legislation - but will not need to submit them to the Pensions Regulator.
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Wind-up
If a scheme is removed from the stakeholder register
it must be wound up. Notice must be given to each member, within 4 months
of the wind-up being started, stating -
- the stakeholder scheme to which the trustees or managers propose paying a transfer of what the member has saved, unless an application, in writing, for a transfer to an alternative scheme is made.
- the value of the member's fund at the date of the commencement of winding-up; and
- that, unless the member applies within 4 months of the date of the notice for a transfer to be made to a scheme of their choice, a transfer may be made without their consent to the scheme named in the notice.
Once a transfer has been made, whether to the scheme by the trustees or managers or to the member's chosen scheme, the trustees or managers must issue a further notice to each member, within a month of making the transfer, stating the:
- amount of the payment;
- name and address of the scheme; and
- date it was paid.
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