New retirement options and trustee responsibilities

Helping you understand the new retirement options.

We want to update you on legislation changes to pensions and your responsibilities that took effect from 6 April 2015:

As you know, the Government has introduced new flexibility around the options that people have when they come to retire.  These options became available from 6 April 2015 to people are aged 55 and over. 

Trustee mailing 

We're writing to you at the end of July to make you aware that the Government has introduced new flexibility around the options that people will have when they come to retire and tell you what you need to do.

 As trustees you'll need to:

  1. Decide whether your scheme should offer the new flexibility, or whether scheme members should have to transfer out to take advantage of it. However, if there is a Guaranteed Minimum Pension (GMP) entitlement under your Scheme, you cannot offer your Scheme Members the additional retirement option(s) with Royal London.
  2. Consider what you should tell members about the new flexibility. Our systems catered for the new flexibility set out in the attached notice from 6 April 2015. The retirement packs that we'll send to you when a member is due to retire will mention these additional options.  Should you not wish to offer these to your members, you must make this clear to them when discussing the options that are actually available through your Scheme.
  3. Provide pension scheme members with information about the free and impartial guidance available through the service set up by the Government (www.gov.uk/pensionwise) throughout their working lives.

See copies of the letter and enclosures:

Trustee letter

Each trustee letter will include notice of the changes we're making to the terms and conditions of their plan.  The notice you receive will depend on which product you have.

 Product Leaflet reference number Product type Group/Individual plan
Crest Growth Pension Plan (group policy) 2TLT1340 DC schemes Group
Crest Secure Pension Plan (group policy) 2TLT1340 DC schemes Group
Retirement Solutions Company Pension Plan 2TLT1341 DC schemes Group
Executive Pension Investment Plan 2TLT1338 EPP Group
Talisman 98 Executive Pension Plan 2TLT1339 EPP Group
Talisman Executive Pension Plan 2TLT1338 EPP Group
Talisman Hallmark Plan 2TLT1338 EPP Group
Versatile Retirement Benefit Plan 2TLT1338 EPP Group
Individual Executive Pension Plan 2TLT1339 EPP Group
Individual Pension Arrangement 2TLT1338 EPP Group

Here's a quick summary of the changes in each notice:

2TLT1338

This notice sets out an additional retirement option that we've introduced under the Scheme's plans with Royal London with effect from 6 April 2015 –Full UFPLS (EPP) - and changes to the rules for death benefits.

Trustees don't have to offer these additional options to Scheme Members. If you don't want to offer the additional options under your Scheme, the options available to Scheme Members will continue to be as currently set out in the Rules of the Scheme.

2TLT1339

This notice sets out additional retirement options that we've introduced under the Scheme's plans with Royal London - All & Partial UFPLS (EPP) - and changes to the rules for death benefits.

Trustees don't have to offer these additional options to Scheme Members. If you don't want to offer the additional options under your Scheme, the options available to Scheme Members will continue to be as currently set out in the Rules of the Scheme.

2TLT1340

This notice sets out additional retirement options that we've introduced under the Scheme's plans with Royal London - Full UFPLS (Crest) - and changes to the rules for death benefits.

Trustees don't have to offer these additional options to Scheme Members. If you don't want to offer the additional options under your Scheme, the options available to Scheme Members will continue to be as currently set out in the Rules of the Scheme.

2TLT1341

This notice sets out additional retirement options that we've introduced under the Scheme's plans with Royal London - All & Partial UFPLS (RS CIMP) - and changes to the rules for death benefits.

Trustees don't have to offer these additional options to Scheme Members. If you don't want to offer the additional options under your Scheme, the options available to Scheme Members will continue to be as currently set out in the Rules of the Scheme.

Important - Guaranteed Minimum Pension (GMP)

If scheme members have a Guaranteed Minimum Pension (GMP) entitlement under their Defined Contribution (DC) scheme, you cannot offer them the additional retirement option(s) when they choose to take their retirement benefits held under the Plan(s).

This applies to the following products:

ProductLeaflet reference numberProduct type

Crest Growth Pension Plan (group policy)

2TLT1340

DC schemes

Crest Secure Pension Plan (group policy)

2TLT1340

DC schemes

The Government has set out new measures aimed at further protecting members of occupational pension schemes that offer money purchase benefits. These new regulations, known as The Occupational Pension Schemes (Charges and Governance) Regulations 2015, came into effect from 6 April 2015.

They mainly relate to charges and governance matters and the responsibilities fall on trustees of the occupational schemes.

We've provided a summary below to help trustees and their advisers understand the nature and breadth of the new requirements.

Why is the Government making changes?

By 2018 it's estimated that 8 to 9 million people will start saving into a pension, or be saving more as a result of automatic enrolment. The Government see it as critical that workplace pensions are well governed and members protected from any high and unfair charges. So these regulations are being introduced to address concerns by the OFT in their market study into DC workplace pensions in 2013.

What is affected?

The charges measures apply to occupational schemes offering money purchase benefits that are used by employers to meet their duties under automatic enrolment ('qualifying schemes').

The governance measures have a broader scope and cover occupational schemes offering money purchase benefits, regardless of whether they are being used for automatic enrolment.

What are the key changes?

The key changes can be broken down into:

Charges measures

  • The regulations set out measures to restrict charges in relevant occupational pension schemes, where these are used by employers to meet their automatic enrolment duties.
  • The duties under the Regulations fall on trustees and managers.The Regulations cap the level of charges that can be charged to members invested in the scheme's 'default arrangement'.
  • A default arrangement generally means the investments that are selected automatically for a member joining a pension scheme, unless they actively select an investment strategy. If more that 80% of members are invested in an arrangement other than the default, it will be classed as a deemed default and will be subject to the same rules as a default arrangement.
  • The regulations include 3 tests by which trustees and managers may identify the default arrangements within their schemes. Full details are given in the regulations supplied at the end of this note.
  • The cap introduced by the Regulations is set at 0.75% annually of funds under management, or an equivalent combination charge.
  • The measures restrict the charging structures which schemes may use in their default arrangement. There are three permitted options:
    • a charge that is calculated as a percentage of the size of the member's pension pot ('funds under management charge').
    • a combination of a funds under management charge and a charge that is calculated as a percentage of the contributions paid into the scheme by, or on behalf of the member ('contribution charge').
    • a combination of a funds under management charge and a flat-fee charged to the member.
  • The measures also prevent trustees and managers from switching between these three charge structures within a charges year.
  • The charge cap covers all costs and charges relating to general scheme administration and investment administration.
  • Transaction costs are excluded from the charge cap. Transaction costs are defined as costs that a scheme incurs as a result of buying, selling, lending and borrowing investments.
  • A small number of other costs do not come under the charge cap. These are the costs associated with complying with court orders, pension sharing on divorce cases, winding up a scheme, and costs solely associated with the provision of death benefits.
  • Trustees and managers can charge in excess of the cap for services which the member has agreed to. This is subject to a number of safeguards. For instance, the agreement must be in writing and state that it will result in charges that exceed the level of the cap.
  • The charge cap was not designed to cover arrangements that include a promise to the member about the benefits they'll receive. Details can be found in the regulations.

Active member discounts (AMDs)

  • AMDs are banned from qualifying schemes from April 2016. AMDs may remain in place between April 2015 and April 2016. However, the charge cap itself will still apply to members in the default arrangement who stop contributing during that period.
  • The measures do not ban employers from subsidising the charges of contributing members, or prevent trustees or managers charging members at different rates, as long as the total level of charges imposed on a member who has stopped making contributions is no higher than it would be if they were contributing.

Minimum governance standards

  • The Regulations set out minimum governance standards for relevant occupational pension schemes. They require that trustees and managers of these schemes ensure that:
    • default arrangements are designed in members' interests and kept under regular review
    • core financial transactions are processed promptly and accurately and that
    • trustees assess of charges and transaction costs borne by scheme members for value for money.
  • They also require that trustees and scheme managers must appoint a Chair (where the scheme does not already have a Chair in place). The Chair will be responsible for signing off an annual Chair's Statement on how these minimum governance standards have been met. This statement will be included in the scheme annual report and will therefore be made available to members and other prescribed persons on request along with the annual report.
  • In some cases the trustee board governing a scheme is a corporate entity. In these cases, the same requirements about minimum numbers of trustees, independent trustees, limited term appointments, and open and transparent recruitment apply to the trustee directors of the trustee.
  • The Regulations also require trustee boards to encourage members to make their views known on matters relating to the scheme.

Regulations in full

It should be noted that this is only intended as a summary of the new regulations and that the full details can be found in the Occupational Pension Schemes (Charges and Governance) Regulations 2015.

Also see The charge cap: guidance for trustees and managers of occupational schemes.

We would encourage trustees to discuss these changes with their legal and other advisers as appropriate.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.