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Focus on value from DC pension investments set to increase after regulation changes

Ref: PN23-21

Issued: Thursday 24 August 2023

The Pensions Regulator (TPR) today (Thursday) updated its guidance to help defined contribution (DC) schemes comply with new regulations designed to ensure they consider all the investment opportunities available to achieve best value for savers.

From 1 October 2023 trustees must state their policy on investing in illiquid assets in the statement of investment principles for their scheme’s default arrangements.

Illiquid assets are those that cannot easily or quickly be sold or exchanged for cash and include any such assets held in a collective investment scheme.

Louise Davey, TPR’s Interim Director of Regulatory Policy, Analysis and Advice, said: “Trustees have a duty to savers to act in their best interests. That means working hard to deliver the retirement income that savers expect, including properly considering the full range of investment options. Our updated guidance helps trustees make these often-complex decisions."

Trustees will also be required to disclose the asset class breakdown for each of their scheme’s default arrangements in the chair’s statement.

The new regulations have also removed a regulatory barrier that may have hindered trustees from exploring investment in certain funds that came with performance fees.

Since 6 April 2023, trustees have had the option to exclude specified performance-based fees from the list of charges falling within the regulatory charge cap limit of 0.75% per annum.

To ensure transparency, schemes must disclose in their chair’s statement any performance-based fees incurred in relation to each of their default arrangements, calculated as a percentage of the average value of the assets held in those defaults.

Trustees must robustly assess the extent to which these fees represent good value for their savers alongside other costs and charges.

Notes for editors

  • TPR updated its:
  • Trustees of all trust-based occupational defined contribution pension schemes with more than one member must prepare a statement of investment principles (SIP) for their default arrangements (default SIP) unless they are an executive pension scheme, a relevant small scheme or fall within another of the exemptions in the Administration Regulations 1996.
  • The default SIP sets out the investment strategy, including investment objectives and policies, for the scheme’s default arrangements.
  • State the policy on illiquid investments in the default SIP:
    • The requirement to state the trustees’ policy on the default arrangements investing in illiquid assets in the default SIP takes effect from the first default SIP produced after 1 October 2023. The default SIP must be updated to include this policy by 1 October 2024.
    • If the policy is for a default arrangement to invest in illiquid assets, the default SIP must for that default arrangement describe:
      • the age profile of the members for whom investments will be held in illiquid assets
      • whether the investments made in illiquid assets will be made directly in illiquid assets or via a collective investment scheme
      • the types of illiquid investments that will be held
      • why the policy is to invest in illiquid assets – including the advantages over other classes of assets
      • whether there are plans to increase investment in illiquid assets in the future.
    • If the policy is for a default arrangement to not invest in illiquid assets, the default SIP must explain why, and whether there are any plans to invest in illiquid assets in the future. 
    • The new requirements were introduced in the Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023 and the ‘Disclose and Explain asset allocation reporting and performance-based fees and the charge cap’ statutory guidance (GOV.UK) associated with them.
  • Disclose the asset allocation in the chair’s statement:
    • From the first scheme year ending after 1 October 2023, the annual chair’s statement must disclose for each of the scheme’s default arrangements the percentage of relevant scheme assets allocated to each of the following asset classes:
      • cash
      • corporate bonds, UK government bonds and foreign government bonds
      • listed equity
      • private equity
      • infrastructure that provides or supports public services including water, gas and electricity networks, roads, telecommunications facilities, schools, hospitals, and prisons
      • property/real estate (excluding property included under ‘infrastructure’)
      • private debt/credit (excluding debt investments included under ‘bonds’)
      • other assets
  • TPR is the regulator of workplace trust-based pension schemes in the UK. Our statutory objectives are: 
    • to protect members’ benefits 
    • to reduce the risk of calls on the Pension Protection Fund
    • to promote, and to improve understanding of, the good administration of work-based pension schemes
    • to maximise employer compliance with automatic enrolment duties
    • to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only)

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