The Pensions Authority has published new information relating to exit charges, trustee annual reports and audited accounts for OMAs migrating into a master trust. We summarise the importance and effect of these changes.
The Authority’s Code of Practice states that members or prospective members of a scheme must be able to transfer assets in and out of a master trust without charge. As such, no exit charges can be applied for assets held under the master trust. However, the following new rules will now apply for existing OMAs migrating into a master trust:
- Exit charges can be applied to the ring-fenced assets transferred from the existing OMA to the master trust. This allows for any pre-existing exit charge period to be carried forward for those ring-fenced assets.
- Exit charges can be applied where, at the date of transfer to the master trust, contributions are being made to the OMA that are subject to an exit charge on the accumulated value of those relevant contributions if the member leaves within the exit charge period. This is usually during a 3- or 5-year term.
- No exit charges are permitted on any future contributions to the master trust except in the above example where there is an obligation to the current level of contributions for a specified exit charge period.
- No exit charges are permitted on any increase in contributions, including automatic increases in regular contributions, discretionary increases in regular contributions or top up contributions.
- No new exit charge period may be imposed for any contribution once the OMA assets have been transferred to the master trust.
Trustee annual report and audited accounts
The Authority has also announced that where the trustees of an OMA, established on or after 22 April 2021, have made a formal commitment to wind up the OMA and transfer its assets either to a master trust or PSRA, the Authority will not expect the trustees to prepare either an annual report or audited accounts, provided that:
- A formal commitment has been made by the trustees before 31 December 2022 to wind up the OMA, and
- The OMA is wound up no later than six months after the formal commitment has been made.
The Authority has stated that a formal commitment to wind up the OMA would include a written instruction from the employer to the trustees to wind up the OMA. A notification from the trustees to the member notifying the member of the trustees intention to wind up the OMA would also fall within the definition of a formal commitment for these purposes.
This update clarifies a query which many life offices had regarding whether exit charges could be applied at policy level as opposed to at the master trust level. It is now clear that exit charges may not be applied on the insurance policy held by the master trust trustee.
To avoid the preparation of an annual report or audited accounts, trustees of OMAs established after 22 April 2021 will need to act quickly to obtain formal commitment to wind up before the end of the year.
Ensuring compliance with the relevant legislation, codes and rules is an essential part of effectively and efficiently managing your scheme. For more information and expert advice, please contact a member of our Pensions team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.