New regulations are due to make changes restricting the charges that can be levied on members' money purchase benefits (including AVCs).
The regulations prohibit or restrict "early exit charges" applied to members taking benefits before the scheme's normal pension age and extend an existing ban on member-borne commission for schemes used for auto-enrolment. Trustees can be fined by the Pensions Regulator if they allow charges to be imposed in breach of the regulations.
For members who join a scheme from 1 October 2017 onwards, trustees must not allow early exit charges to be imposed. For existing members, early exit charges cannot be increased after 1 October 2017, and in any event must not exceed 1% of the value of the benefits. Broadly, an "early exit charge" is an administration charge applied to a member who takes or transfers his benefits before normal pension age under the scheme if that charge is higher than would have applied at normal pension age.
The administrators of the scheme are required to write to the trustees by the end of October to confirm that they are complying with the restrictions, so trustees should diarise to make sure they receive this confirmation, and may wish to liaise with the administrators before then to make sure that this is on their radar.
For schemes used by an employer to satisfy its auto-enrolment obligations, the Government banned the use of new contracts allowing member-borne commission from 6 April 2016. "Member-borne commission" refers to using a member's pension pot to pay someone who advises the members or employer. From 1 April 2018 the ban is being extended to cover earlier contracts. There are detailed rules governing which payments and which members are caught by the extended ban, and what information the trustees and administrators are required to give each other. If a scheme currently makes any form of member-borne commission payment, it will be necessary to consider the rules in more detail to work out whether the payments will still be permitted after April 2018.
