The National Social Security Fund information desk. FILE PHOTO | NMG
A member’s right to information is critical in these changing times, given the relative complex nature of pension schemes and the levels of financial and pension literacy.
Over the past few decades, employers have gradually moved away from the more complex and involving Defined Benefit (DB) schemes to Defined Contribution (DC) schemes thereby shifting risk, responsibility and choice to the members of the pension scheme.
With the shift of risk and responsibility to members, access to information and engagement by members has never been more important!
Access to information empowers members by creating awareness and allows for better informed decision making. Informed members consequently set the wheels in motion for more transparent and accountable management of pension schemes.
Remember that occupational pension schemes are set up by the employer but are overseen by a separate independent body, the Board of Trustees, who have the sole responsibility of managing the scheme.
The right to information means on one hand, the right of members to understand their pension scheme and on the other hand, the obligation of the Trustees to provide this information.
Each scheme is governed by a legal document (the Trust Deed and Rules) that spells out the terms and conditions of the scheme. This document is a focal point of reference with respect to all the information about a scheme.
It is vital that members familiarise themselves with the Trust Deed and Rules of their scheme and some schemes even provide member booklets that summarise all the basic scheme information. The booklet is intended to provide details of the key aspects of the scheme in a plain and simple way. However, a booklet can never override the legal trust deed of a scheme.
Notwithstanding the differing circumstances under which employers offer a pension plan to members, the right to information revolves around the following four typical areas discussed below.
Basic Scheme Information
Members should be able to answer some basic questions about their scheme, such as: Who are the trustees of the scheme? Who is eligible to become a member of the scheme? How do members build up benefits? Do members contribute to the scheme? How much do members contribute? Does the employer contribute? How much does the employer contribute? What is the normal retirement age of the scheme? What benefits are members entitled to on various modes of exit from employment?
The bulk of this information can be found in the Trust Deed and Rules, a member booklet (if available) or by simply asking your company HR department or a scheme trustee!
Legal Documents
Apart from the Trust Deed and Rules, members are also entitled to inspect the audited accounts of the scheme. Members also have the right to inspect other documents such as the registers of the scheme custodian and the scheme investment reports.
Remember, the scheme has been established for the benefit of its members and the Trustees’ role is to safeguard your interests in the scheme and they act as your fiduciary.
Annual General Meeting (AGM)
All schemes are legally required to hold an AGM where members are invited. Members who attend get to receive reports and updates from the scheme Trustees and service providers who include administrators, auditors, actuaries, custodians and fund managers. AGMs also include an opportunity for members to ask questions to Trustees and service providers on any other scheme matters.
In addition to getting updates on the Scheme’s performance and progress, the AGM also provides an avenue through which members are made aware of any benefit changes in the scheme, and how their benefits would be affected. Of course, any change to the scheme benefits will be accompanied by amendments to the Trust Deed and Rules.
Member Statements
Members are entitled to an annual benefit statement at the end of every financial year. These statements provide information about a member’s benefit entitlement at the end of the financial year under review.
For members of a DC scheme, the statement typically provides information on the contributions made by the member and the employer, the interest declared by the Trustees for the financial year and the member’s fund credit at the end of the year. The statement of a member of a DB scheme usually provides the projected benefit entitlement in the scheme.
The right to information promotes transparency, awareness and understanding and accountability. It also provides members an opportunity to counter check their information and ensure the statement accurately reflects their data and contributions.
In addition to the right to information, members should be aware of their benefit rights and other general rights.
Benefits Rights
Members are entitled to benefit accrual and access to benefits. The benefit entitlement and accessibility should be clearly laid out in the Trust Deed and Rules of the scheme. A member’s benefits cannot be denied or assigned by the employer to settle any claims or for any other reason.
Members who change jobs have the right to retain their benefits within the scheme should they wish to. In previous articles, I have covered areas of benefit portability and cash access on leaving employment.
General Rights
Members have the right to be involved in the scheme. This includes the right to participate in the membership of the employer’s scheme but only if they are eligible and the right to elect the Trustees who represent them. The Board of Trustees usually consists of a mix of individuals selected by the employer and the members.
Members also have the right to equal treatment and entitlements under the pension scheme.
In my experience, members’ interest in the pension scheme increases with age, with members who are close to retirement showing a particularly keen interest in the pension scheme. As a member, you are entitled to information on your scheme benefits, but it is up to you to ask for it!
Adil Suleman, Head of Actuarial Division at Zamara.
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