Consultation outcome

Annex C: Draft regulations

Updated 21 June 2021

Statutory instruments
2021 No.
Pensions

The Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021

Made
Laid before Parliament
Coming into force

The Secretary of State for Work and Pensions makes the following Regulations in exercise of the powers conferred by sections 113(1), (5), (6) and (7), and 182(2) and (3) of the Pension Schemes Act 1993^{[footnote 51]}, sections 35 and 174(2) of the Pensions Act 1995^{[footnote 52]}, sections 60(2)(h) and (3) and 315(2) and (3) of the Pensions Act 2004^{[footnote 53]} and sections 43 and 54(5) of, and paragraphs 1(2), 2(1), (2), (3) and (5) of Schedule 18 to the Pensions Act 2014^{[footnote 54]}.

In accordance with section 185(1) of the Pension Schemes Act 1993, section 120(1) of the Pensions Act 1995, section 317 of the Pensions Act 2004 and paragraph 8 of Schedule 18 to the Pensions Act 2014, the Secretary of State has consulted with such persons as the Secretary of State considers appropriate.

In accordance with section 113(9) of the Pension Schemes Act 1993, the Secretary of State has consulted with the Financial Conduct Authority and the Treasury.

Citation, commencement and application

1.—(1) These regulations may be cited as the Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021.

(2) They come into force on 5th October 2021.

(3) The amendments made by regulations 2, 3(2)(b), 3(3) and 5 apply in relation to an occupational pension scheme from the day after the last day of the first scheme year of that scheme which ends after 5th October 2021.

(4) The amendments made by regulation 4(2) and (3) apply in relation to an occupational pension scheme from the date after the end of 3 months beginning with the last day of the first scheme year of that scheme which ends after 5th October 2021.

(5) The amendments made by regulation 6(2)(c) apply in relation to an occupational pension scheme from the day after the last day of the first charges year of that scheme which ends after 5th October 2021.

(6) For the purposes of this regulation—

“charges year” has the meaning given in regulation 2 of the Occupational Pension Schemes (Charges and Governance) Regulations 2015^{[footnote 55]}
“scheme year” has the meaning given in regulation 1(2) of the Occupational Pension Schemes (Scheme Administration) Regulations 1996^{[footnote 56]}.

The Occupational Pension Schemes (Scheme Administration) Regulations 1996

2.—(1) The Occupational Pension Schemes (Scheme Administration) Regulations 1996 are amended as follows.

(2) In regulation 23(1)^{[footnote 57]}—

(a) after sub-paragraph (a), insert—

“(aa) report on the return on investments (after deduction of any charges or transaction costs relating to those investments), relating to—

(i) each default arrangement; and
(ii) each fund which members are (or were) able to select and in which assets relating to members are invested during the scheme year,

having regard to guidance issued by the Secretary of State under section 113(2A) of the Pension Schemes Act 1993^{[footnote 58]};”;

(b) in sub-paragraph (c)—

(i) in paragraph (ii), after “members are”, the first time it appears, insert “(or were)”;
(ii) for paragraph (iv), substitute—

“(iv) where the trustees or managers are required to assess the extent to which the charges and transaction costs borne by members represent good value for members, explain that assessment;”;

(c) after sub-paragraph (ca), insert—

“(cb) explain the results of any assessment required under regulation 25(1A);”.

(3) In regulation 25^{[footnote 59]}—

(a) in paragraph (1), at the beginning of sub-paragraph (b), insert “unless the relevant scheme is a specified scheme,”;
(b) after paragraph 1, insert—

“(1A) If the relevant scheme is a specified scheme, the trustees or managers of the scheme must, at intervals of no more than one year—

(a) assess the extent to which the scheme provides good value for members, and as part of that assessment, assess—

(i) the charges and transaction costs borne by members of the scheme by comparison with the charges and transaction costs borne by members of at least 3 schemes (“comparison schemes”)—

(aa) each of which satisfy the conditions in paragraph (1C)(a), and
(bb) at least one of which satisfies the condition in paragraph (1C)(b),

(ii) the return on investments by comparison with the return on investments relating to—

(aa) the default arrangement, and

(bb) any funds which members are (or were) able to select and in which assets relating to members are invested during the scheme year,

for the 3 comparison schemes, and in each case the return on investments is to be calculated after deduction of any charges or transaction costs, and

(iii) how the administrative and governance criteria set out in paragraph (1B) are met by the scheme;

(b) in making the assessment required under sub-paragraph (a), have regard to any guidance issued by the Secretary of State under paragraph 2 of Schedule 18 to the Pensions Act 2014 in relation to that assessment.

(1B) The administration and governance criteria set out in this paragraph are—

(a) the promptness and accuracy of core financial transactions;
(b) the quality of the records kept by the trustees or managers;
(c) the appropriateness of the default investment strategy followed by the trustees or managers;
(d) the quality of the scheme’s investment governance;
(e) the extent to which the requirements of sections 247 and 248 of the Pensions Act 2004^{[footnote 60]} are satisfied and the trustees or managers have the knowledge, understanding and skills to enable them properly to exercise their functions and to operate the scheme effectively;
(f) the quality of communication with the members of the scheme;
(g) the effectiveness of management of any conflicts of interest that might arise between or among trustees and managers, or between trustees, managers and third parties

(1C) The conditions in this paragraph are that—

(a) each scheme used as the basis for the comparison is—

(i) an occupational pension scheme which on the relevant date held assets equal to or greater than £100 million; or
(ii) a personal pension scheme, which is not an investment-regulated pension scheme within the meaning of paragraph 1 of Schedule 29A to the Finance Act 2004^{[footnote 61]}; and

(b) the trustees believe, on reasonable grounds, that one of the 3 schemes would be prepared to accept a transfer of members of the specified scheme if the specified scheme is wound up.

(1D) In this regulation—

“core financial transactions” has the same meaning as in regulation 24;
“default arrangement” has the meaning given in regulation 1 of the Investment Regulations;
“default investment strategy” means the default strategy referred to in regulation 2A(1)(c) of the Investment Regulations^{[footnote 62]};
“the Investment Regulations” means the Occupational Pension Schemes (Investment) Regulations 2005^{[footnote 63]};
“specified scheme” means a relevant scheme which, on the relevant date—

(i) held assets worth less than £100 million, and
(ii) has been operating for 3 or more years;

“relevant date” means the last day of the scheme year preceding the year in which the assessment required by paragraph (1)(b) is made.”.

The Register of Occupational and Personal Pension Schemes Regulations 2005

3.—(1) Regulation 3 of the Register of Occupational and Personal Pension Schemes Regulations 2005^{[footnote 64]} is amended as follows.

(2) In paragraph (1)—

(a) after sub-paragraph (da), insert—

“(db) the value of the assets held by the scheme for the purpose of providing benefits to members, calculated on the last day of the scheme year which ended most recently;”

(b) after sub-paragraph (h), insert—

“(ha) in the case of a specified scheme—

(i) whether, on the basis of the assessment required by regulation 25(1A) of those Regulations (“value assessment”), the trustees or managers of the scheme consider that the scheme provides good value for members;
(ii) where a value assessment was carried out for the previous year, whether, on the basis of that value assessment, the trustees or managers of the scheme considered that the scheme provided good value for members;

(hb) in the case of a specified scheme where the trustees or managers of the scheme have stated under sub-paragraph (ha)(i) that they do not consider that the scheme provides good value for members—

(i) whether the trustees or managers propose to wind up the scheme and transfer its members into another scheme; and
(ii) if the trustees or managers do not propose to wind up the scheme—

(aa) their reasons for not doing so, and
(bb) what improvements they propose to make to the scheme to ensure that it does provide good value for members;”.

(3) In paragraph (4), after the definition of “recovery period”, insert—

““specified scheme” means an occupational pension scheme which is a relevant scheme within the meaning of the Occupational Pension Schemes (Scheme Administration) Regulations 2005^{[footnote 65]} which, on the last day of the scheme year which ended most recently—

(a) held assets worth less than £100 million; and
(b) has been operating for 3 or more years.”.

The Occupational Pension Schemes (Investment) Regulations 2005

4.—(1) The Occupational Pension Schemes (Investment) Regulations 2005^{[footnote 66]} are amended as follows.

(2) In regulation 1(2)^{[footnote 67]}, in sub-paragraph (c) of the definition of “default arrangement”, for “(3) and (4)” substitute “(3), (4), (6), (7) and (8)”.

(3) In regulation 2A^{[footnote 68]}—

(a) in paragraph (3), after “charges” insert “and transaction costs”;
(b) after paragraph (5), insert—

“(6) For the purposes of this regulation, “transaction costs” has the meaning given in regulation 2(1) of the Occupational Pension Schemes (Charges and Governance) Regulations 2015^{[footnote 69]}.”.

(4) In regulation 8(1)(a), for “(b) and (c)” substitute “(b), (c) and (d)”.

The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013

5. In regulation 29A(2) of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013^{[footnote 70]}—

(a) after sub-paragraph (a), insert—

“(aa) paragraph (1)(aa);”;

(b) at the end of sub-paragraph (b), omit “and”;
(c) at the end of sub-paragraph (c), insert—

“and

(d) paragraph (1)(cb).”.

The Occupational Pension Schemes (Charges and Governance) Regulations 2015

6.—(1) The Occupational Pension Schemes (Charges and Governance) Regulations 2015 are amended as follows.

(2) In regulation 2—

(a) in paragraph (1)—

(i) in the definition of “charges”, after sub-paragraph (e), insert—

“(f) costs solely attributable to holding physical assets;”;

(ii) after the definition of “charges year”, insert—

““commodity” means any goods of a fungible nature that are capable of being delivered, including metals and their ores and alloys, agricultural products and energy such as electricity, but not including cash or financial instruments (within the meaning of article 3 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001^{[footnote 71]};”;

(iii) after the definition of “jobholder”, insert—

““performance fee” means a fee which—

(a) is calculated by reference to the returns from investments held by the scheme, whether in terms of the capital appreciation of those investments, the income produced by those investments or otherwise; and
(b) is not calculated by reference to the value of the member’s rights under the scheme; “physical asset” means an asset whose value depends on its physical form, including land, buildings and other structures on land or sea, vehicles, ships, aircraft or rolling stock, and commodities;”;
(b) after paragraph (1), insert—

“(1A) For the purposes of the definition of “charges”, the costs solely attributable to holding a physical asset include—

(a) the costs of managing and maintaining the asset;
(b) fees for valuing the asset;
(c) the cost of insuring the asset in question;
(d) ground rent charges, rates, taxes and utilities bills incurred in relation to the asset.”
(c) after paragraph (4), insert—

“(5) When a charge under a single charge structure is calculated on a pro rata basis under paragraph (3) and paragraph (6) applies, no account is to be taken of any performance fee charged within the period for which the calculation is made.

(6) This paragraph applies if the performance fee in question is calculated and deducted from the value of the investments to which it relates each time the value of those investments is calculated for the purposes of buying or selling units.”

Signed by authority of the Secretary of State for Work and Pensions

Name
Minister of State
Department for Work and Pensions
Date

Explanatory note

(This note is not part of the Regulations)

These Regulations amend the law relating to the administration of occupational pension schemes. Regulation 2 amends the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (S.I. 1996/1715) to require trustees and managers to report on the return on investments their funds have achieved as part of the annual statement required on governance. It also requires the trustees and managers of schemes holding assets worth less than £100 million to compare the charges and transaction costs and the return on investments of their schemes with 3 other schemes and to assess the extent to which their schemes satisfy administration and governance criteria as part of their value for members assessment under regulation 25(1A) of those Regulations. Regulation 5 makes a consequential amendment to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (S.I. 2013/2734).

Regulation 3 amends the Register of Occupational and Personal Pension Schemes Regulations 2005 (S.I. 2005/597) to require additional registrable information to be sent to the Regulator for inclusion in the register of occupational pension schemes and personal pension schemes.

Regulation 4 amends the Occupational Pension Schemes (Investment) Regulations 2005 (S.I. 2005/3378) to remove the obligation for the statement of investment principles of a wholly-insured scheme which is also a defined benefit scheme to include any information on the trustees’ policy on asset managers.

Regulation 6 amends the Occupational Pension Schemes (Charges and Governance) Regulations 2015 (S.I. 2015/879) to exclude costs attributable to holding physical assets from the charges which are subject to the charge cap imposed under those Regulations and also ensures that no account is taken of certain performance fees in calculating a charge under a single charge structure.

A full regulatory impact statement of the effect that this instrument will have on the costs of business, the voluntary sector and the public sector is available from Legislation GOV.UK. A hard copy of the impact assessment may be obtained from:

Department for Work and Pensions
Caxton House
Tothill Street
London
SW1H 9NA

1. 1993 c. 48. Subsection (1) has been amended by Child Support, Pensions and Social Security Act 2000, s. 52(1) and prospectively amended by the Pension Schemes Act 2015 (c. 8), s.38. Sections 113(5) to (10) were inserted by the Pensions Act 2014 (c. 19), s. 44(1), and section 113(5) is prospectively amended by the Pensions Scheme Act 2015 (c. 8), s. 38(6). Section 185 was amended by Schedule 3 (paragraph 46), Schedule 5 (paragraph 80) and Schedule 7, Part 1 to the Pensions Act 1995 (c. 26) ↩

2. 1995 c. 26. Section 35 was substituted by s. 244 of the Pensions Act 2004 (c. 35) ↩

3. 2004 c. 35 ↩

4. 2014 c. 19 ↩

5. S. I. 2015/879. There are amendments to regulation 2 which are not relevant to this definition ↩

6. S.I. 1996/1715. There are amendments to regulation 1(2) which are not relevant to this definition ↩

7. Regulation 23 was inserted by S.I. 2015/879 and amended by S.I.2016/427 and 2018/233 ↩

8. Subsection (2A) was inserted by s.38 of the Pension Schemes Act 2015 ↩

9. Regulation 25 was inserted by S.I. 2015/879 ↩

10. 2004 (c. 35). Section 248 of the Pensions Act 2004 was amended by S.I. 2009/1941 ↩

11. 2004 (c. 12). Schedule 29A was inserted by paragraph 13 of Schedule 21 to the Finance Act 2006 (c.25) ↩

12. Regulation 2A was inserted by S.I. 2015/897 ↩

13. S.I. 2005/3378. The definition of “default arrangement” was inserted by S.I. 2015/879 and amended by S.I. 2016/427 ↩

14. S.I. 2005/597. Sub-paragraph (da) was inserted into regulation 3 by S.I. 2015/879. There are other amendments to regulation 3 which are not relevant to these Regulations ↩

15. S.I. 1996/1715 ↩

16. S.I. 2005/3378 ↩

17. The definition of default arrangement was inserted by S.I. 2015/879, and amended by S.I. 2016/427 ↩

18. Regulation 2A was inserted by S.I. 2015/879, and amended by S.I. 2018/988 ↩

19. S.I. 2015/879. There are amendments to regulation 2 which are not relevant to these Regulations. ↩

20. S.I. 2013/2734. Regulation 29A was inserted by S.I. 2018/233 and amended by S.I. 2018/982 and 2018/988 ↩

21. S.I. 2001/544. The definition of financial instrument was inserted by S.I. 2006/3384, and amended by S.I 2017/488 and 2019/632. There are other amendments to this Article which are not relevant to this instrument ↩