Gated transfer guidance could present 'real difficulties' for DC pension trustees

New guidance on transfer requests, where all or part of the member’s investment is held in a fund which has been 'gated' until the market normalises, could present trustees with “real difficulties”, Burges Salmon has warned.

In the new guidance, TPR has accepted that payment of a cash equivalent transfer value (CETV) could be "problematic" in current circumstances.

However, it clarified that it does not believe the law allows the regulator to grant an extension to the statutory timeframe for payment in these circumstances.

As such, it stated that defined contribution (DC) trustees must prioritise these requests as they would any other transfer, and do everything possible to process the requests promptly.

It also warned that it will fine those who do not take reasonable steps to pay a transfer value within six months, such as exploring with the receiving scheme whether the monies from the gated section could follow once the fund has re-opened.

Burges Salmon senior associate, Andy Prater, said that this analysis could present trustees with "real difficulties", posing questions as to whether they retain the investment in the gated fund but pay the balance of the CETV.

He explained that "unfortunately" partial transfers of DC benefits are not within the scope of the statutory transfer rights under the Pension Schemes Act 1993, meaning that a member must exercise the option in relation to the whole of the CETV.

Considering this, Prater urged trustees with a relevant case to take advice on the interaction with the provisions of their scheme rules in relation to partial transfers.

He also noted that a “key consideration” is the extent to which they may need to rely on express rather than statutory discharge provisions.

"Under the legislation," he explained, "where trustees have done what is needed to carry out what the member requires, they shall be discharged from any obligation to provide benefits to which the cash equivalent related."

However, Prater also highlighted the Lloyds judgment of November 2020, noting in light of this that a partial transfer of the CETV will not give the trustees a statutory discharge.

As such, he stated that trustees in these circumstances will need to look at their scheme rules and consider with the member whether they might defer their transfer request or give a contractual discharge for a partial transfer pending the opening of the gated fund.

Despite this, he argued that it seems “clear” that whilst trustees will need to report to TPR where they fail to pay the full CETV within six months, a fine is "unlikely" provided the trustees have taken appropriate action to liaise with the receiving scheme and member in order to attempt to pay a partial transfer.

Prater concluded: “Trustees will not have to increase the CETV where it is paid late under Regulation 10 of the 1996 Transfer Value Regulations provided they have a ‘reasonable excuse’.”

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