New deferred debt arrangements
New regulations will introduce deferred debt arrangements from 6th April 2018. This will enable employers in multiemployer schemes who cease to employ any active members, to defer payment of an employer debt. Employers that have liability transferred to them under an apportionment arrangement will also be able to enter a deferred debt arrangement.
Certain conditions must be met before an employer debt can be deferred. The trustees must be satisfied that the employer’s covenant is not likely to weaken materially for 12 months (which replaces the funding test originally proposed). Deferred debt arrangements can end in a number of circumstances, including if the employer resumes employing an active member, or becomes insolvent, or agrees with the trustees that the arrangement will end. The government has added to this in the final regulations, confirming that deferred arrangements will end if the scheme winds up or if all employers become insolvent.
Enhanced disclosure of DC costs and charges
Changes to the rules on disclosure of DC costs and charges are intended to make it easier for members and trustees to obtain and compare investment costs. With a few limited exceptions, all occupational schemes providing DC benefits (unless the only DC benefits are AVCs), will need to publish charges and transaction cost information free of charge on a publicly available website. The web address must be included in members’ benefit statements, along with a brief explanation about what information is available. Trustees must also illustrate the compounding effect of the costs and charges on pension savings. The regulations deliberately avoid being too prescriptive about how schemes should present this information to members, although there is statutory guidance to help schemes.
Schemes must comply within seven months of the first scheme year end-date to fall on or after 6th April 2018. The first schemes to be caught will be those whose scheme year ends on 6th April 2018, and they will have until 6th November 2018 to publish the information. To help schemes comply, the Financial Conduct Authority has already brought in new rules obliging investment managers and insurers to provide information about transaction costs and charges to pension schemes, calculated using a standardised method.
The government is also adopting reforms to give engaged members more information about pooled investments selected by trustees. From 6th April 2019, trustees must disclose, on request to members or recognised trade unions, the top level of funds for which public information is available in which members are directly invested. By helping engaged members work out what the pooled funds holdings are, how asset managers select investments, and how they engage with companies in which they invest, the government hopes to promote more effective investment practices.
DC to DC bulk transfers without consent:
process simplified New regulations will simplify the process for making transfers without member consent between ‘pure’ DC schemes (i.e. those without additional guarantees). The government hopes that making transfers without consent easier will help schemes consolidate and reduce the number of smaller DC schemes, which can offer poor value for money.
From 6th April 2018, bulk transfers of DC benefits without member consent will be possible without trustees having to obtain an actuarial certificate. Transferring trustees will have to take independent advice on the transfer, unless the receiving scheme is an authorised master trust or the transferring scheme and receiving scheme are connected, for example on a corporate restructuring.
There is an 18-month period during which schemes can continue under the existing regime and rely on an actuarial certificate.
Where transfers are not completed by 30th September 2019, schemes must use the new simplified regime. The DWP intends to produce guidance on the new regime before the end of April 2018.