TPR issues warning over DC allocations to alternative funds

Jonathan Stapleton
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TPR says contributions can’t be invested in funds, such as property, that have been temporarily gated
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TPR says contributions can’t be invested in funds, such as property, that have been temporarily gated

Trustees of defined contribution (DC) schemes redirecting contributions made during Covid-19 to alternative funds should check they’re not unintentionally breaching pension legislation, The Pensions Regulator (TPR) warns.

The watchdog said DC schemes may have members who have self-selected investment in funds, such as property, that have been temporarily closed - or gated - until the market normalises following Covid-19-fuelled market volatility.

It said contributions that come in during this period cannot be invested in these funds and so trustees will need to invest them in a different fund.

The regulator's guidance said the temporary closure of funds could create a default arrangement for the purposes of legislation - meaning they would be subject to rules such as a charge cap if the scheme is used for automatic enrolment and also the need for a separate statement for investment principles (SIP) for this default arrangement.

TPR's view is 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.

It said trustees should review the DC code of practice, which explains where a fund will be a default arrangement, also noting they may need legal advice to check if their scheme is affected.

The regulator said if they have unintentionally created a default arrangement they should take immediate steps to ensure they meet legal requirements - but reassured it would continue take a pragmatic approach, based on individual scheme circumstance, in deciding whether to take enforcement action.

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

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