Trustees diverting contributions into alternatives to closed property funds may be breaching legislation by unintentionally creating default arrangements that should be subject to the charge cap, The Pensions Regulator (TPR) has warned.
TPR says trustees diverting contributions away from self-select scheme members’ property funds should immediately take steps to ensure the new funds meet the legal requirements for defaults. These requirements include falling within the charge cap if the scheme is used for automatic enrolment and having a statement of investment principles that meets the requirements for a default arrangement.
TPR says the only ways a default arrangement would not be created are if members were made aware funds could be diverted before they selected the original fund or trustees subsequently obtained consent from members before diverting contributions.
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 should take immediate steps to ensure they meet legal requirements.
TPR says it will continue to take a pragmatic approach to decide whether it would be appropriate to take action in individual circumstances but adds that in the case of chair’s statements it has no discretion in using its powers and will continue to impose fines for non-compliance.