UK Pensions - New regulations on employer debt, bulk transfers and disclosure requirements
Responses to consultations on four key topics have been published by the government, with new regulations on each coming into force on 6 April 2018. Trustees and employers of defined contribution (DC) occupational pension schemes will need to get up to speed with some significant additional disclosure requirements and may also be interested in the new simplified process for bulk transfers of DC benefits without consent. Meanwhile, the introduction of a new mechanism for managing employer debts will be of interest to trustees and employers of defined benefit (DB) multi-employer schemes. The ability to transfer contracted-out rights, without member consent, to schemes that have never been contracted-out will also be welcome news for some schemes and employers.
Disclosure of costs, charges and investments
Trustees of most DC schemes will be subject to several new disclosure obligations:
- the chair’s statement will need to set out the charges and transaction costs for each default arrangement and each alternative fund option, together with an illustrative example of the compounding effect of such charges and transaction costs;
- some of the information from the chair’s statement will also need to be published free of charge on a publicly available website;
- on request, trustees will be required to disclose details of each collective investment scheme in which assets are directly invested (or, in the case of unit-linked contracts, details of each collective investment scheme directly attributable to that contract) to members and trade unions; and
- the annual benefit statements sent to members will need to include details of how members can obtain the additional information.
The new costs and charges information will first need to be provided within seven months of the first scheme year ending on or after 6 April 2018 – for example, for schemes whose scheme year ends on 6 April 2018, the chair’s statement due by 6 November 2018 will need to include the new information. The investment information will need to be available from 6 April 2019.
Statutory guidance has been published, which trustees must have regard to in complying with the new requirements.
Employers of DB schemes will be able to take advantage of the new “deferred debt arrangement” for managing employer debts from 6 April 2018. A deferred debt arrangement allows an employer in a multi-employer DB scheme who has experienced an employment cessation event (including where the employer has previously entered into a period of grace) to defer payment of their employer debt. Certain conditions must be met in order to enter into a deferred debt arrangement, including:
- the trustees must consent to the arrangement in writing;
- the scheme must not be in a PPF assessment period or being wound up; and
- the trustees must be satisfied that neither a PPF assessment period nor a material weakening of the employer’s covenant is likely to occur within 12 months of the date the arrangement takes effect.
While the deferred debt arrangement is in place, the employer continues as an employer in relation to the scheme – this means, for example, that it will still need to meet its scheme funding obligations. The employer also remains responsible for the employer debt and will be obliged to pay it on the occurrence of certain events.
The new regulations also extend the period for employers to provide a period of grace notice from two months to three months.
The deferred debt arrangement will be available alongside the existing mechanisms for managing employer debts (such as flexible apportionment arrangements). It will be of particular interest to employers in non-associated multi-employer schemes, who may have encountered difficulties making use of the existing mechanisms.
Bulk transfers of DC benefits without consent
The circumstances in which DC benefits can be transferred without members’ consent will be simplified from 6 April 2018. Such transfers will be permitted if:
- the receiving scheme is authorised under the new master trust regime;
- the transfer is made between schemes controlled by connected employers; or
- the trustees of the transferring scheme have taken written advice from an appropriate independent adviser before making the transfer.
The charges cap will continue to apply where a members’ rights have been transferred without their consent, although this does not apply where the member is transferred from one non-default arrangement to another and they selected that arrangement within the five years before the transfer.
Transfers of contracted-out benefits
From 6 April 2018, new regulations will allow contracted-out pension rights to be transferred, without members’ consent, to schemes which have never been contracted-out, subject to satisfying certain conditions. This will be helpful for trustees and employers considering a scheme merger involving the transfer of contracted-out rights to a new scheme which has never been contracted-out.
For more information on any of these developments, please speak to your usual Linklaters contact.