Whilst the impact of the Charges and Governance Regulations on defined contribution pension plans is widely understood, the inconsistent approach to DC AVCs within defined benefit plans has caused some confusion.

Unlike the requirements for a “value for money” assessment, chairperson’s statement and charge cap, which do not apply to plans where the only DC benefits are AVCs, the provisions on active member discounts and member-borne commissions also apply to AVCs (provided that they are attached to a plan that is being used by its sponsoring employer as a qualifying scheme for automatic enrolment purposes).

A ban on member-borne commissions was added to the Regulations on 6 April 2016 and requires trustee action on or before 5 July 2016.

If you are a trustee of a pension plan that holds DC benefits and is being used by an employer to discharge its automatic enrolment duties in relation to the plan members, the Regulations require you to give notice of this to your DC service providers (for example scheme administrators and AVC providers).

Trustees must give the appropriate notice on or before 5 July 2016.  Service providers then have to promptly confirm to the trustees that they do not levy charges on members which are used, directly or indirectly, to pay an adviser or to reimburse a service provider for a payment made to an adviser. Trustees will then need to provide confirmation on their 2017 scheme return that all service providers have given this confirmation.