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LoupedIn

Opening and closing the DC gate

Published on February 1, 2021 by Alison Garton

Opening and closing the DC gate

The Pensions Regulator (TPR) recently updated TPR’s DC scheme management and investment: Covid-19 guidance for trustees to add a section on transfer requests where all or part of the investment is temporarily closed or ‘gated’ until the market normalises.

Where funds close temporarily and contributions are redirected by trustees into alternative funds, these alternative funds may become “default” arrangements and be subject to the statutory charge cap, and also be subject to the requirements relating to the statement of investment principles and the Chair’s statement. 

TPR previously provided guidance on this and what happens as gated funds reopen and DC schemes seek to reapply funds to a member’s original choice of self-selected funds. The particular circumstances, such as the precise terms of any consent given by a member and the correspondence with the member before or after the funds are gated, are likely to determine whether or not the original fund also becomes a “default”.

Trustees should consider taking appropriate advice before any reapplication of funds without member consent to minimise the risk of funds inadvertently becoming “default funds”.  TPR has, helpfully, noted that it will continue to take a pragmatic approach when deciding whether it would be appropriate to take action in individual circumstances for failure to comply with the requirements applicable to a “default fund”, but also noted that it has no discretion in relation to the content of Chair’s statements, so must continue to impose fines for considered non-compliance.

But what happens if a member asks for a cash equivalent transfer value (CETV) and all or part of the member’s investment is held in a gated fund? While TPR acknowledges payment of a full CETV in these circumstances is likely to be problematic, it does not believe an extension to the statutory timeframe for payment of a CETV is legally permitted.  So, trustees are expected to do everything possible to process such CETV requests promptly and may be fined if there is a failure to take all reasonable steps to pay a transfer value within the statutory timeframe. 

Where only part of the investment is in a gated fund, reasonable steps for the trustees might include exploring with the receiving scheme and the member whether the assets from the gated fund could follow once the fund has reopened, with a partial transfer being an interim measure. This does pose some challenges for trustees and administrators and trustees should take appropriate advice to consider whether their scheme rules permit this, ensure that discharge forms and discharge documentation are appropriately drafted and that members understand the position.  

Trustees must still report any significant failures to pay CETVs within the statutory period, outlining the steps taken towards compliance.  If trustees take the interim measures suggested, the updated guidance is a tentative indication that leniency may be granted.   

Mind the gate and click here for the January 2021 updated guidance.

About the author(s)

Alison Garton
View Alison's profile | See recent posts

Alison advises Trustees on a wide range of pensions matters. Her pensions practice encompasses advisory work, drafting pension scheme documentation and handling discrete projects. She enjoys helping clients find pragmatic solutions to their pensions issues and navigate the ever-changing regulatory landscape.

  • Alison Garton
    https://loupedin.blog/author/alisongarton/
    What's next for DC occupational pension schemes?

Alison Garton

Alison advises Trustees on a wide range of pensions matters. Her pensions practice encompasses advisory work, drafting pension scheme documentation and handling discrete projects. She enjoys helping clients find pragmatic solutions to their pensions issues and navigate the ever-changing regulatory landscape.

Filed Under: Analysis Tagged With: Defined contribution, Pensions, Pensions law

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LoupedIn is the Official Gowling WLG Blog. Gowling WLG is an international law firm comprising the members of Gowling WLG International Limited, an English Company Limited by Guarantee, and their respective affiliates. Each member and affiliate is an autonomous and independent entity. Gowling WLG International Limited promotes, facilitates and co-ordinates the activities of its members but does not itself provide services to clients. Our structure is explained in more detail on our Legal Information page.

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