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

Amendment of the Occupational Pension Schemes (Charges and Governance) Regulations

6.—(1) The Occupational Pension Schemes (Charges and Governance) Regulations (Northern Ireland) 2015(1) are amended in accordance with paragraphs (2) to (12).

(2) In regulation 2 (interpretation)—

(a) in paragraph (1)—

(i) in the definition of “charges” after paragraph (e) add—

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

(ii) after the definition of “combination charge structure” 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(2));”;

(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—

(a)

land;

(b)

buildings and other structures on land or sea;

(c)

vehicles, ships, aircraft or rolling stock, and

(d)

commodities;”;

(iv) in the definition of “service provider”(3) for “specified” substitute “relevant”;

(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;

(d) ground rent charges, rates, taxes and utilities bills incurred in relation to the asset.”;

(c) after paragraph (4) insert—

“(4A) When a charge under a single charge structure is calculated on a pro rata basis under paragraph (3) and paragraph (4B) applies, no account is to be taken of any performance fee charged within the period for which the calculation is made.

(4B) 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.”.

(3) Before the heading to regulation 4 insert—

“CHAPTER 1

Default arrangements, non-contributing members and payments to advisers”.

(4) In regulation 4 (restrictions on charges)—

(a) in paragraph (1)(4) for “this Part”, in each place where it appears, substitute “this Chapter”;

(b) in paragraph (2)(5) for “this Part” substitute “this Chapter”;

(c) in paragraph (4)(6) for “This Part” substitute “this Chapter”.

(5) In regulation 6(1) (limits on charges) for “The limits” substitute “Subject to regulation 13C(6), the limits”.

(6) In regulation 7 (assessment of charges) after paragraph (8) add—

“(9) Paragraph (10) applies where the charges imposed on a member include a performance fee payable at the end of the investment period.

(10) For the purposes of paragraph (4), the charge imposed annually on the member in relation to the performance fee may be treated as X divided by Y, where—

(a) X is the sum of the performance fees accrued in relation to the return earned by the assets in the default arrangement (“the relevant assets”) during the relevant charges year and each of the preceding charges years, up to a maximum of 4 preceding charges years, and

(b) Y is—

(i) 5, or

(ii) where the investment period is less than 5 charges years, the number of charges years in the relevant period.

(11) Where the trustees or managers choose to calculate the charge imposed annually on a member in accordance with paragraph (10), the trustees or managers must, at the end of each charges year during the investment period, calculate—

(a) the return earned by the relevant assets during that charges year;

(b) the performance fee which has accrued in relation to that return.

(12) In this regulation, “investment period” means the total period for which the assets in the default arrangement are invested in an investment for which a performance fee is payable at the end of the investment period.”.

(7) In regulation 8 (alternative assessment of charges)—

(a) in paragraph (2) after “paragraph (3)” insert “and, if the trustees or managers so choose, the assumption in paragraph (3A)”;

(b) after paragraph (3) insert—

“(3A) The assumption which may be made for the purposes of paragraph (2) is that, where the charges include a performance fee to which regulation 7(10) applies, the charge to be imposed on the member in relation to the forthcoming charges year will be X divided by Y, where—

(a) X is the sum of the performance fees accrued in relation to the return earned by the assets in the default arrangement during each of the years preceding the charges year in question, up to a maximum of 5 preceding charges years, and

(b) Y is—

(i) 5, or

(ii) where the investment period is less than 5 charges years, the number of charges years in the relevant period.”.

(8) In regulation 9 (member agreement for services)—

(a) in paragraph (1)—

(i) after “in relation to” insert “advice or”;

(ii) after “provision of that” insert “advice or”;

(b) in paragraph (3) after “does not apply to” insert “advice or”.

(9) In regulation 11A(7) (payments to advisers)—

(a) in paragraph (1) omit “on or after 6th April 2016”;

(b) in paragraph (2) after “11B(2)” insert “, 11B(2B)”;

(c) in paragraph (4) for “This regulation” substitute “The prohibition in paragraph (2)”;

(d) for paragraph (6) substitute—

“(6) The prohibition in paragraph (2) does not apply to a charge imposed to reimburse a service provider for any payment made to an adviser for advice or a service referred to in paragraph (3)(a) or (b) where—

(a) the charge is imposed under a relevant contract which—

(i) was entered into before 6th April 2016, and

(ii) has not been varied or renewed on or after that date, and

(b) the payment was made before 1st October 2021.”;

(e) after paragraph (6) add—

“(7) Where the prohibition in paragraph (2) applies it overrides any term of a relevant contract to the extent that the term conflicts with it.”.

(10) In regulation 11B (relevant information)—

(a) in paragraph (2) for “paragraph (4)” substitute “paragraphs (2B) and (5)”;

(b) after paragraph (2) insert—

“(2A) This paragraph applies where the relevant contract—

(a) was entered into before 6th April 2016, and

(b) has not been varied or renewed on or after that date.

(2B) Subject to paragraph (5), where paragraph (2A) applies regulation 11A does not apply until the expiry of the period of 6 months beginning with 1st October 2021.”;

(c) in paragraph (3) for “The service” substitute “Except in a case to which paragraph (2A) applies, the service”;

(d) after paragraph (3) insert—

“(3A) In a case to which paragraph (2A) applies, subject to paragraph (5), the service provider must confirm in writing to the trustees or managers of the specified scheme within one month beginning with 1st April 2022 that it is complying with the prohibition in regulation 11A(2) in relation to all members to whom paragraph (2A) applies.”;

(e) in paragraph (5)—

(i) in sub-paragraph (a) for “paragraph (2)” substitute “paragraph (2) or (2B)”;

(ii) in sub-paragraph (b) for “paragraph (3)” substitute “paragraph (3) or (3A)”;

(f) in paragraph (6) after “paragraph (3)” insert “or (3A)”.

(11) In regulation 11C(3) (member agreement for payments to advisers) after “member agreement for” insert “advice or”.

(12) After regulation 13 (amendment of the Occupational and Personal Pension Schemes (Consultation by Employers) Regulations and the Occupational Pension Schemes (Modification of Schemes) Regulations) insert—

“CHAPTER 2 RESTRICTIONS ON EARLY EXIT CHARGES

Early exit charges

13A.— (1) For the purposes of this Chapter an early exit charge in relation to a member of a relevant scheme is a charge which—

(a) is imposed under the scheme or a relevant contract when a member who has reached normal minimum pension age takes the action mentioned in paragraph (2), and

(b) is only imposed, or only imposed to that extent, if the member takes that action before the member’s normal pension age.

(2) The action is the member taking benefits under the scheme, converting benefits under the scheme into different benefits or transferring benefits to another pension scheme.

(3) For the purposes of this regulation—

(a) “normal minimum pension age” has the meaning given in section 279(1) of the Finance Act 2004(8);

(b) “normal pension age” means the earliest age at which, or the earliest occasion on which, the member is entitled to receive the benefit without adjustment for taking it early or late (disregarding any special provision as to early payment on the grounds of ill-health or otherwise and any administration charges), and

(c) a reference to “benefits” includes any part or all of those benefits.

Prohibition of early exit charges

13B.— (1) This regulation applies to a member of a relevant scheme who joined that scheme on or after 1st October 2021.

(2) Service providers and trustees and managers of a relevant scheme must not impose an early exit charge, or permit such a charge to be imposed, on a member of the scheme to whom this regulation applies.

Limits on early exit charges

13C.— (1) This regulation applies to a member of a relevant scheme who joined that scheme before 1st October 2021.

(2) Service providers and trustees and managers of a relevant scheme must not impose, or permit to be imposed, on a member of the scheme to whom this regulation applies an early exit charge that exceeds the lower of—

(a) 1% of the value of the member’s benefits being taken, converted or transferred, or

(b) such amount as was provided for under the scheme rules or a relevant contract as at 1st October 2021.

(3) Where no provision for an early exit charge was made under the scheme rules or a relevant contract as at 1st October 2021, service providers and trustees and managers of a relevant scheme must not impose an early exit charge, or permit such a charge to be imposed, on a member of the scheme to whom this regulation applies.

(4) Trustees and managers of a relevant scheme must not—

(a) include provision in a relevant scheme for an early exit charge, where such provision did not exist on 1st October 2021, or

(b) vary provision for an early exit charge in such a scheme to increase or potentially increase the charge.

(5) Nothing in this regulation permits an early exit charge to be imposed—

(a) that is higher than the limits prescribed by regulation 6 where that regulation applies, or

(b) where section 33 of the Pension Schemes Act (Northern Ireland) 2021(9) (prohibition on increasing charges etc during triggering event period) applies.

(6) Nothing in regulation 6 permits—

(a) an early exit charge which is lower than 0.75% of the value of the member’s benefits being taken, converted or transferred, to be increased, or

(b) an early exit charge to be imposed where one did not exist.

(7) The value of a member’s benefits in paragraphs (2)(a) and (6)(a)—

(a) means the value calculated at the point when the trustee or manager of the scheme receives confirmation from the member of the instruction to take the action giving rise to the early exit charge, and

(b) is to be calculated in accordance with guidance issued from time to time by the Department.

Conflicting contract terms

13D.   Regulations 13B and 13C override any term of a relevant contract to the extent that the term conflicts with those regulations.

Relevant information

13E.— (1) A service provider must confirm in writing to the trustees or managers of a relevant scheme that it is complying with the restrictions in regulations 13B and 13C within one month beginning with whichever is the later of—

(a) 1st October 2021, or

(b) the date on which the service provider becomes a service provider in relation to the relevant scheme.

(2) The service provider must inform the trustees or managers of the relevant scheme in writing if the confirmation that it has given in compliance with paragraph (1) is no longer accurate as soon as practicable, and in any event within one month, beginning with the date on which that confirmation is no longer accurate.”.

(1)

S.R. 2015 No. 309

(2)

S.I. 2001/544; the definition of “financial instrument” was inserted by Article 3 of S.I. 2006/3384 and amended by Article 2 of S.I. 2017/488 and regulation 121 of S.I. 2019/632. There are other amendments to this Article which are not relevant to these Regulations

(3)

The definition of “service provider” was inserted by regulation 3(c) of S.R. 2016 No. 171

(4)

Paragraph (1) was amended by regulation 4(a) of S.R. 2016 No. 171

(5)

Paragraph (2) was amended by regulation 4(c) of S.R. 2016 No. 171

(6)

Paragraph (4) was added by regulation 3(2) of S.R. 2018 No. 54

(7)

Regulations 11A to 11C were inserted by regulation 5 of S.R. 2016 No. 171

(8)

2004 c. 12

(9)

2021 c. 6 (N.I.)