What is a trust-based pension scheme?
A trust-based defined-contribution (DC) scheme is a workplace pension scheme run by a group of trustees that employers can independently appoint, rather than by a pension provider.
Being trust-based gives your employees the security that their pension assets are legally ring-fenced, and they'll get their pension even if your business runs into difficulties. It delivers robust governance to help ensure good outcomes for your employees.
Just like a contract DC pension, a trust-based DC pension is built through contributions from the employer, employees, tax relief from the government, and any investment growth.
Trustee governance
The board of trustees makes sure members' interests are protected and that the workplace pension offers value for money. The roles of the trustees include:
- Responsibility for the administration of the scheme
- Managing member communication
- Making sure the scheme is governed correctly
- Selecting the fund range members will be offered
- Managing certain liabilities towards members
So, is a trust-based scheme right for you?
A trust-based defined-contribution scheme could be ideal if you already have a trustee board in place, for example from a legacy defined benefit (DB) scheme. Otherwise, you may be a company that has the resources to set up your own trustee board and operate your own in-house pension scheme.
Compared to a contract pension or a master trust, a trust-based scheme requires more significant investment as you’ll need to support the board of trustees. Our TargetPlan trust-based DC pensions are flexible – they can either be fully administered by a board of trustees or used as an investment-only service.
If you want trustee oversight but don’t have the resources to appoint your own trustee board, consider a master trust. In a master trust, governance, administration, and trustee services are shared with other employers, reducing operating costs.
Who regulates trust-based schemes?
In both trust and contract-based schemes, The Pensions Regulator is responsible for ensuring that payments are made from an employer to members’ pension funds.
The Financial Conduct Authority is responsible for managing the regulation of individual members’ pensions, which includes annuities and drawdown arrangements.
Additional voluntary contribution pensions
Your employees may wish to boost their retirement savings by making additional voluntary contributions alongside their workplace pension. Our additional voluntary contribution pension, or AVC, will allow your employees to top up their pension pot in a tax-efficient way – making additional voluntary contributions that are deducted from their wages before tax.
We offer this scheme on a defined-contribution basis, where additional contributions are invested by us and go towards a member’s pension pot for retirement. The additional voluntary contribution pension is set up to sit alongside your main workplace pension scheme.
Some employers also decide to add to or match their employees’ contributions to the scheme.