What is a trust-based pension scheme?

Just as it sounds, a trust-based defined contribution (DC) scheme is a workplace pension scheme run by a group of trustees that the employer appoints, rather than by a large pension provider.

Being trust-based gives your employees the added security that their pension assets are legally ring-fenced and they'll still get their pension even if your business runs into difficulties.

It can meet your needs as an employer by delivering robust governance to help ensure good outcomes for your employees. Roles of the trustees include:

  • being responsible for the administration of the scheme
  • managing member communication
  • ensuring the scheme is governed correctly
  • selecting the fund range members will be offered
  • managing certain liabilities towards members 

Who are trust-based schemes best suited to?

As a defined contribution scheme, a trust-based DC pension is built up through contributions from the employer, employees, tax relief from the government and any investment growth.

Trust-based DC schemes tend to be favoured by companies that already have a trustee board in place for a legacy defined benefit (DB) scheme or that have the resources to set up their own trustee board and operate their own in-house pension scheme. 

For employers that want trustee oversight but don’t have the resources to appoint their own trustee board, a master trust where governance, administration and trustee services are shared with other schemes may be a solution.

Who regulates trust-based DC schemes?

In both trust and contract-based schemes, The Pensions Regulator(Opens new window) is responsible for ensuring that payments are made from an employer to the members’ pension funds.

The Financial Conduct Authority(Opens new window) is responsible for managing the regulation of individual members’ pensions and subsequently annuities and drawdown arrangements.

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