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DC scheme management and investment: COVID-19 guidance for trustees

Further guidance for trustees of defined contribution (DC) pension schemes to follow during the COVID-19 crisis.

We appreciate this does not cover the whole range of issues trustees are facing. This guidance is designed to support trustees facing difficult decisions and circumstances, and should not supersede trustees’ fiduciary duties, their obligations under the scheme rules, or the legislation. We are not authorising, encouraging or compelling a particular course of action - we expect trustees to do the right thing for their situation and members. This guidance highlights some good practice ideas and outlines our current response to legislative breaches, trustee actions, or employer actions that might impact the trustees.

Published: 27 March 2020

Last updated: 11 January 2021

11 January 2021: Section added on transfer requests where all or part of the investment is gated.

30 June 2020: Rewrite of section on when the temporary closure of investment funds create a default arrangement.

21 May 2020: Section added on when the temporary closure of investment funds create a default arrangement.

13 May 2020: Member transfers section added.

29 April 2020: Member communications information removed and link added to communicating to members during COVID-19.

17 April 2020: Employer wants to reduce contributions section added.

27 March 2020: Guidance published.

Key points

  • Trustees should consider how individual members might react in the current environment to headline market/fund value falls or reduction/loss in earnings. Members could make inappropriate decisions, crystallise losses or be exploited by scams
  • Trustees should review and manage specific risks that may now exist within their portfolios or with their service providers, for example in relation to sector exposures/concentrations in certain funds
  • Trustees should review any previously agreed investment and risk management decisions to be implemented in the future. This is to ensure they remain appropriate, efficient and do not introduce risks or crystallise losses
  • Trustees should review their investment governance structures and delegations to ensure they can continue to function and make decisions in the event of trustee incapacity or absence
  • Trustees should assess, following the recent performance of their scheme, whether any changes to their governance framework or provider arrangements should be made at an opportune time
  • We recognise that in the current circumstances, employers may need to reduce their AE contributions to the statutory minimum
  • We have agreed not to take regulatory action against these employers if they fail to consult affected members for the full 60-day period provided they meet certain conditions
  • If a rule change is required in order to reduce employer contributions and trustees have or share responsibility for this, they must be mindful of their duty to act in the members' best interest


Some members of DC schemes might have significant levels of exposure to ‘risk assets’ if they are in an early accumulation, high-growth phase. Members who are wholly exposed to equity investments may have seen their fund values fall significantly. In principle, most members of DC schemes have long investment horizons and they should be able to tolerate shorter-term volatility. However, headline market falls and individual fund value falls may:

  • cause some members to switch their investments and crystallise current market losses
  • discourage members from saving and may encourage opt-outs, and/or
  • make some members more susceptible to scams promising better returns

In addition, in a financially challenged environment, some members, especially those with flexible incomes or facing reduced levels of household earnings, may opt out.

Market uncertainty will continue for some time as the impacts of the COVID-19 pandemic and central government policy responses feed through.

However, there are clearly some significant short to medium-term risks for DC schemes and members, and there is the potential for some longer-term value destruction where organisations fail to trade through the current challenging conditions or where individual longer-term business models are compromised. We believe trustees should review with their advisers what actions (if any) might be necessary to take for their schemes and members.

We would recommend that trustees consider the following:

  • Review our guidance on communicating to members during COVID-19 to help them make informed decisions.
  • The investment strategy and investment mandate rebalancing requirements they currently have in place. In some instances, trustees may feel it is appropriate to suspend or refine these requirements.
  • The degree of diversification and the extent of any concentrations of risk. This might be in specific investments or sectors they currently have through their investment arrangements or investment mandates. In some instances, trustees may feel it is appropriate to consider making changes in relation to certain exposures (or levels of exposures) to specific investments or sectors.
  • The extent of their exposures to certain counterparties.
  • The timing of any pre-agreed asset transitions or fund switches.
  • The terms of reference for any subcommittees to ensure that they can continue to function in the event of trustee incapacity or absence. This might include a review of quorate and sign-off/signature requirements.
  • The schedule of delegated responsibilities to ensure that activities can be carried out in the event of trustee incapacity or absence, for example where the chair of the investment subcommittee or trustee board is required to authorise disinvestments of certain levels.
  • Their current investment and risk governance arrangements. Trustees may feel an alternative governance structure might be more appropriate and/or may feel that in the longer term, consideration should be given to consolidating their scheme with a larger provider which might be able to offer members the potential for better outcomes and better support throughout their savings journey.

Trustees should also be mindful that market dislocations can also present opportunities and should consider with their advisers how they might evolve their investment strategies or investment and governance arrangements at an appropriate time. Some of these opportunities may involve:

  • value enhancing investment opportunities
  • value preservation activities, for example, through proactive management of deteriorating risks, or
  • using the dislocation as an opportunity to reconsider future DC benefit delivery and potentially transferring the scheme to a larger, better resourced provider

When does the temporary closure of funds create a default arrangement?

We are aware that some members of DC schemes have self-selected investment in funds (eg property funds) that have recently been temporarily closed (or 'gated') until the market normalises.

Redirecting contributions into an alternative fund

Some trustees, having taken investment advice, are redirecting scheme contributions into alternative funds until the gated funds reopen. This could result in the alternative funds becoming default arrangements and therefore subject to legal requirements such as the charge cap (if the scheme is used for automatic enrolment) and the requirement to have a statement of investment principles for that default arrangement.

You may need to take legal advice to assess whether this is the case for your scheme. According to the DC code of practice, the position will depend on how the members who selected their investment made their choice. Were they aware and did they agree to their contributions being used in this way?

We believe that the only circumstances where a default arrangement would not be created are if either:

  • members were made aware before they selected the original fund that contributions could be diverted to another fund in certain situations, and agreed to this when choosing the original fund
  • you contacted the members before diverting contributions and obtained their consent: note that you should consider taking advice on the implications for your scheme before doing this

Redirecting contributions back into the original fund

We are aware that some gated funds are reopening and that some DC schemes are looking to take steps to reapply their members’ original choice of self-selected fund.

If you choose to redirect contributions and assets accrued in an alternative fund while the original fund was gated back into the original fund when it reopens, you will need to consider whether the pre-existing expression of choice will still apply, or whether any further action or member consent is needed. This will depend on the individual circumstances, including the precise terms of the original consent given, and of any correspondence with members before or after the fund was gated.

We would expect that the pre-existing expression of choice will still apply where members have either:

  • consented to the redirection of the contributions on a temporary basis, until the original fund ceases to be gated
  • been informed by the trustees that their contributions are being diverted into a default fund but that this will be corrected as soon as the original fund reopens

We would anticipate that a pre-existing expression of choice could also be preserved in the following circumstance. Members whose contributions have been diverted are informed that, in the trustees’ view, the pre-existing expression of choice remains in place and they are given the opportunity to object before those contributions are redirected back into the original self-select fund.

If, having taken legal advice, you determine that the pre-existing expression of choice no longer applies, we would expect members to be contacted and offered the option of completing a new expression of choice to enable contributions to be re-directed back to the original self-select fund. However, if contributions are directed back to the original fund without obtaining a new expression of choice from the member, that original fund would fall within the definition of a 'default arrangement'.

Implications of creating a default arrangement

If you have discovered that you have unintentionally created a default arrangement by diverting funds, you should immediately take steps to ensure this arrangement meets the legal requirements. These requirements include falling within the charge cap if the scheme is used for automatic enrolment and having a statement of investment principles that meets the requirements for a default arrangement.

We will continue to take a pragmatic approach to decide whether it would be appropriate to take action in individual circumstances. Note that in the case of chair’s statements we have no discretion in using our powers and will continue to impose fines for non-compliance.

Employer wants to reduce contributions

We recently published guidance for employers, some of whom may be struggling to make their pension contributions in relation to DC pensions.

If this is the case and the employer wants to reduce their contribution, they can only do so if they don't breach the auto-enrolment requirements. They will need to consider several factors first, including whether a change to the scheme rules will apply and whether consultation is necessary.

Consultation requirements in relation to reducing employer contributions

Employers with at least 50 employees are legally required to consult with members for a minimum of 60 days if they are making changes that decrease employer contributions.

However, due to the current situation we have updated our guidance to ease regulatory action if the employer fails to consult for the full 60 days subject to certain conditions – the main one being that the employer is only proposing to reduce contributions for furloughed staff to align with the Government’s Job Retention Scheme. Read more about the changes to employer consultation guidelines.

Trustee involvement with scheme rule changes

If a change to the scheme rules is required, the power to do this could rest with the trustees, the employer, or be shared between them, depending on the individual scheme rules.

If your scheme's sponsoring employer approaches you about this and the power to change the scheme rules is shared or rests with the trustees, you will need to make sure that the decision you take is in the best interests of the members. This can include factoring in the likelihood of the employer being able to continue as a going concern if they continue to pay the current rate of contributions, but you should make sure you are satisfied that this is a genuine risk and give thought to whether any change should be temporary.

If the power rests solely with the employer, we have recommended that they notify you before making any changes.

Member transfers

Transfers from DC schemes are core financial transactions and a common way for savers aged over 55 to access their benefits, so you should continue to process member requests as usual.

Be aware of scam threats

Savers might increasingly look to transfer their pension, prompted by the instability of their employer or the financial markets.

This means they could be targeted by scammers attempting to lure them to 'safe havens'. If a scheme member asks about transferring their pension, you should do your own due diligence on the proposed transfer and refer to our guidance on communicating to members during COVID-19.

What you should prioritise

We expect you and your administrators to prioritise your scheme's core financial transactions during the COVID-19 crisis, and these will include transfers out from your scheme. If a member's transfer is delayed, and their investments fall in value in that period, then the member's cash equivalent transfer value will be reduced. It is therefore very important to process transfers within a reasonable timeframe, making sure you've done your due diligence.

You should continue to monitor all transfer activity from your scheme and work with your administrator if you encounter any issues with meeting demand. Read more about working effectively with your administrators during this time.

Trustees of hybrid schemes

This guidance applies to the DC benefits in your scheme – but you will need to consider how your members with both DB and DC benefits will be affected if a temporary transfer suspension is applied to the DB benefits in your scheme. Make sure you tell your scheme members if this is happening – read communicating to members during COVID-19 for more information.

Transfer requests where all or part of the investment is gated

We appreciate that payment of a cash equivalent transfer value (CETV) is likely to be problematic where all or part of the member’s investment is held in a gated fund. However, we do not believe that the law permits us to grant an extension to the statutory timeframe for payment of a CETV in these circumstances.

It is important that you prioritise these requests as you would any other transfer, and we would expect you to do everything you can to process them promptly – we may fine you if you fail to take all reasonable steps to pay a transfer value within six months of the application date.

If only part of the investment is in a gated fund, reasonable steps might include exploring with the receiving scheme whether the monies from the gated section could follow once the fund has re-opened and, if so, offering the member a partial transfer as an interim measure.

You should continue to report any significant failures to pay transfer values within the statutory period, outlining the reasons why and the steps you have taken towards compliance. See our code of practice on reporting breaches of the law for more information about reporting.

See further information about gated funds.

What you can expect from us

We recognise that this is a very difficult time, both for trustees and employers. We would like to assure you that we are doing all we can to assist you. We appreciate that some schemes may struggle to meet statutory deadlines or comply with statutory requirements. We will continue to take a pragmatic approach, using our discretion, where we can, to decide whether it would be appropriate to take action regarding specific breaches.

The Pensions Ombudsman has confirmed it will take into account our latest guidance on COVID-19 issues if it receives complaints about delays caused by COVID-19 circumstances. Read The Pensions Ombudsman statement on COVID-19.

If you are in relationship-managed supervision, please contact your named supervisor with any queries.

For other schemes, please contact if you require assistance.