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.
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