Flat fee charge protections inserted

The Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2022 (S.I. 2022/10) inserted regulations 6(5) to (7) and 6ZA into the Occupational Pension Schemes (Charges and Governance) Regulations 2015, with effect from 6 April 2022¹.

The 2015 Regulations set the framework for workplace pension charges and the charge cap in occupational schemes. They were made on 23 March 2015 and came into force on 6 April 2015, with regulation 11 and regulation 23, and related words in regulation 4(2), coming into force on 6 April 2016¹. The 2015 instrument defines a "flat fee charge" by reference to regulation 5(3), alongside "contribution percentage charge" and "existing rights charge"¹. It also defines "charges year" as a period of 12 months specified in any scheme document or, if no such year is specified, a period of 12 months commencing on either 1 or 6 April as the trustees or managers decide, or 1 April if no decision is made¹.

The 2015 Regulations have been amended repeatedly since they were made. The changes recorded include amendments inserted on 6 April 2016 by S.I. 2016/304, on 1 October 2017 by S.I. 2017/774, on 1 April 2018 by S.I. 2018/240, on 1 October 2021 by S.I. 2021/1070, on 6 April 2022 by S.I. 2022/10, and on 1 August 2022 by S.I. 2022/255¹. Further changes took effect on 6 April 2023 under S.I. 2023/399, which also omitted certain provisions¹.

The 2015 Regulations define "transaction costs" as the costs incurred as a result of the buying, selling, lending or borrowing of investments, and exclude transaction costs from the definition of "charges"¹. "Charges" also excludes winding up costs, costs solely associated with the provision of death benefits, costs solely attributable to holding physical assets, and specified performance-based fees¹. A "performance fee" is defined as a fee calculated by reference to the returns from investments held by the scheme, whether in terms of capital appreciation, income produced or otherwise, and not calculated by reference to the value of a member's rights under the scheme¹.

The 2015 Regulations also define a "relevant small scheme" as a scheme with fewer than 12 members, subject to conditions on trustee or director arrangements, and an "executive pension scheme" as one where a company is the only employer and sole trustee and the members are current or former directors including at least one third of current directors¹. A "default arrangement" is defined by reference to arrangements used by a qualifying scheme for one or more relevant jobholders, and includes an arrangement under which the contributions of 80% or more of contributing members were allocated where those workers were required to choose where their contributions went¹.

The text of the 2015 Regulations as published does not set out the wording of the provisions inserted by S.I. 2022/10, and the specific effect of regulations 6(5) to (7) and 6ZA has not been reported in the material available¹.

Why it matters for households

The amendment took effect on 6 April 2022 and applies to occupational pension schemes within the scope of the 2015 Regulations¹. The 2015 Regulations govern how charges are defined and capped in those schemes, and the definitions of "charges", "flat fee charge", "transaction costs" and "performance fee" determine which costs fall within the rules and which are excluded¹. The insertion of regulations 6(5) to (7) and 6ZA therefore sits within the same framework that determines what members of affected schemes pay¹.

The 2015 Regulations apply to relevant schemes and qualifying schemes as defined in the instrument, and the definitions of "jobholder", "qualifying scheme" and "employer" are drawn from section 99 of the Pensions Act 2008¹. Members of schemes outside that scope, and members of collective money purchase schemes, are treated separately in the definitions, with collective money purchase provisions inserted on 1 August 2022 by S.I. 2022/255¹.

The 2015 Regulations also provide for independent governance committees and related governance duties, and the amendment forms part of the wider pension reforms in progress tracked across occupational schemes¹.

What happens next

The 2015 Regulations are recorded as up to date with all changes known to be in force on or before 26 September 2026, with changes that may be brought into force at a future date¹. Outstanding changes listed include words omitted from regulation 2(1) by S.I. 2023/399¹.