Defined contribution charge cap guidance issued last week “could leave many schemes in hot water,” Pitmans Trustees (PTL) has said.

The Department for Work and Pensions modified its guidance on the charge cap that applies to qualifying DC schemes last Friday, revising property charges regulations.

The change to property stated that transaction costs, which includes the insuring and maintenance of a property, can be excluded from the cap and so act as an additional charge to the charge cap on DC schemes.

Nonetheless, while imposing this in the guidance, the DWP responded to a recent consultation on the Charges and Governance regulations saying that they did not see a case for excluding property holding and maintenance charges from the cap.

The recent charge cap guidance essentially leaves the door open for a great deal of confusion for DC schemes investing in property, PTL has argued.

“DWP’s guidance outlines that property holding and maintenance costs are now added to the list of charges outside of the charge cap. All well and good for those schemes invested in or looking at property investments, but the problem is this guidance has no legal force and flies directly in the face of the regulations. The result – significant uncertainty for trustees of DC schemes on whether they should invest in property,” PTL managing director Richard Butcher said.

“The issue with the confusion this has created is that it could leave many schemes in hot water with their own membership. Any member of a DC scheme, aggrieved at paying property holding costs could (a) point to the regulations (i.e. the law) and make a factual complaint of non-compliance and (b) argue that it is unreasonable to treat holding costs as a transaction cost – because they aren’t.

“It is something that needs to be cleared up as soon as possible or we risk members litigating against their trustees.”

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