Earlier this month, we issued a briefing on the DC charge cap. Almost as soon as we had published it, the DWP issued further draft regulations clarifying the position in respect of AVCs.
The DWP's stated policy intention is that AVCs will only be subject to the charge cap where the particular default arrangement is also used by a qualifying scheme to fulfil an employer's automatic enrolment obligations in relation to at least one employee (and a number of other conditions are met). There is concern that, without the amendment, the regulations governing the DC charge cap will also catch AVCs that are made within a qualifying scheme but into an arrangement which only receives AVCs. This could mean that DC AVC arrangements within an otherwise wholly DB scheme could be caught (and this is not what the DWP intends).
The amendment is designed to achieve the result that no arrangement solely receiving contributions which are AVCs will be a 'default arrangement' and so subject to the charge cap.
The table below summarises the application of the new DC governance and charge cap requirements to various types of scheme or arrangement.
| Scheme or section | Governance standards | Chair's statement | Charge cap (default fund) |
| Occupational DC qualifying scheme | √ | √ | √ |
| Occupational DC scheme/section (not qualifying) | √ | √ | χ |
| Workplace personal pension scheme | Financial Conduct Authority (FCA) | FCA | FCA |
| DC AVC section of DC scheme | √ | √ | χ |
| DC AVC section of DB scheme | χ | χ | χ |
| Trust-based stakeholder scheme | √ | √ | √ |
| Mastertrust | √ | √ | √ |
| SSAS and executive schemes | χ | χ | χ |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
