Trust Based to Contract Based Solutions
A common argument for switching
to a contract-based scheme is
a reduction in the employer's
administration costs, such as the
processing of contributions and dayto-
day record keeping.
Under a contract-based scheme, these costs, which can amount to upwards of £30,000- £40,000 (per annum), are passed on to the pension provider. Another saving is the administration required in relation to deferred members, such as annual statements.
Another perceived benefit is that the removal of a trust-based structure eradicates issues around governance. The recently introduced Occupational Pensions Schemes (trustees' knowledge and understanding) Regulations 2006 are daunting and mean trustees must keep ahead of developments in investment. Many employers are finding costs in terms of time and money are beyond the level they find acceptable.
Under a contract-based scheme, these costs, which can amount to upwards of £30,000- £40,000 (per annum), are passed on to the pension provider. Another saving is the administration required in relation to deferred members, such as annual statements.
Another perceived benefit is that the removal of a trust-based structure eradicates issues around governance. The recently introduced Occupational Pensions Schemes (trustees' knowledge and understanding) Regulations 2006 are daunting and mean trustees must keep ahead of developments in investment. Many employers are finding costs in terms of time and money are beyond the level they find acceptable.
However, the Pensions Regulator has just
published guidance on Voluntary Employer
Engagement in the workplace for contractbased
pension schemes so that covers
governance issues. It is wise to bear in mind
the following core risks highlighted by The
Pensions Regulator to Employers:
Perhaps the biggest risk and concern in winding up an existing scheme is the thought that employees may take it badly. The very fact that it has Trustees and a parental feel may offer comfort to members, however misguided, but with the burden of choice now placed on the shoulders of the member, for them there are more pressing issues, such as fund choice and other options. In essence they need advice.
- Poor administration practices
- Poor investment practices
- Unduly high charges
- Poor retirement options
- Lack of member understanding
Perhaps the biggest risk and concern in winding up an existing scheme is the thought that employees may take it badly. The very fact that it has Trustees and a parental feel may offer comfort to members, however misguided, but with the burden of choice now placed on the shoulders of the member, for them there are more pressing issues, such as fund choice and other options. In essence they need advice.
To all intents and purposes, members of a
Defined Contribution Occupational Scheme
are governed under Personal Pension rules
following simplification rules at 'A' Day.
However many employers still run Trust Based
Schemes and hold the burden of the potentially
high level of cost associated with them.
Our solutions help to ease the burden of the issues outlined above, giving a structured stage by stage approach, with our team on hand to help at every turn. This can not only alleviate some of the pain but also reduce some of the cost. Add to this the advice process received by every member of staff and this can actually become a very positive process.
Our solutions help to ease the burden of the issues outlined above, giving a structured stage by stage approach, with our team on hand to help at every turn. This can not only alleviate some of the pain but also reduce some of the cost. Add to this the advice process received by every member of staff and this can actually become a very positive process.