Regulator warns on alternative funds for DC self-select

Many open-ended UK property funds were gated during a March onset of sudden volatility, leaving members who had self-selected them for their pensions unable to withdraw, but also unable to invest new contributions.

In an update to its Covid-19 guidance published on Thursday, the regulator warned that if trustees have diverted members’ contributions to a new fund in the meantime, this could become a default arrangement for the purpose of pensions legislation, leading to requirements such as a charge cap and a separate statement of investment principles.

TPR stated: “Trustees should review the DC code of practice, which explains where a fund will be a default arrangement. They may need legal advice to check if their scheme is affected.

“If they’ve unintentionally created a default arrangement, [they] should take immediate steps to ensure they meet legal requirements.”

According to the watchdog, the only circumstances where a fund used for diverted contributions does not become a default arrangement are if members were made aware of this possibility before they selected the original fund, or if the trustee contacted the members before diverting contributions and obtained their consent.

TPR has reassured trustees it will continue to take a pragmatic approach, based on individual scheme circumstances, in deciding whether to take enforcement action.

But it warned it has no discretion in using its powers regarding chair’s statements and will continue to impose fines for non-compliance.

Last week, the regulator updated its guidance to urge trustees to prioritise pension switches and ensure they are completed in “good time” so savers do not miss out during the Covid-19 pandemic.

It said switches between DC schemes are a “core financial transaction” and a common way for savers to access their pension funds, so should continue to remain a priority throughout the coronavirus crisis.

This article originally appeared on ftadviser.com