We help employers go beyond doing the basics. Aside from employers’ legal duties, we enhance sustainable and responsible fund options whilst optimising tax efficiency.
Three main types of workplace pensions:
1) Occupational pensions
These schemes can be either defined benefit or defined contribution. Defined benefit schemes are based on an employee’s salary and how long they’ve worked for the employer. Defined contribution schemes are based on employees building an individual pension pot of money from contributions paid in, plus investment returns and tax relief. The main characteristic of these types of pension is they are set up by the employer under trust. The trust will then have appointed trustees and along with employer have legal obligations regards the running of the scheme. The administration of the pension will usually be carried out by a pension provider.
The employer takes on a lot of responsibility and effectively acts as the owner for the pension scheme. The employer decides on the rules of the scheme and how it will be run. Trustees are appointed by the employer. The Trustees have the power, as set out in the trust deed and rules, to ensure the scheme is run effectively and in every members’ interest.
Trustees are responsible for how members’ pension contributions are invested. Depending on the scheme rules, members may have an option on how the monies are invested.
Ultimately for members, their relationship is with the employer and trustees, not the pension provider.
For an occupational pension scheme to be used for automatic enrolment purposes, the scheme rules must allow the workplace pensions rules, as set out by The Pensions Regulator, in order to be a ’qualifying’ scheme.
2) Group personal pensions, group self-invested personal pensions & stakeholder pensions
Unlike occupational pensions, group personal pensions, group self-invested personal pensions and stakeholder pensions work on the basis of direct contracts with its members. Members’ relationships are direct with the pension provider, not their employer.
These types of pensions are all defined contribution contracts.
The most common pension for many will be a group personal pension. They are the most straightforward, flexible and have a focussed selection of funds.
There is a rise in interest for group self-invested personal pensions which enjoy far more freedom to invest monies in different types of investments. They are often situated on a provider’s ‘platform’ and may have the option to run an ISA and general investment account alongside, expanding the savings options for employees.
With regards to automatic enrolment, most defined contribution pension schemes will be able to become a qualifying workplace pension scheme.
3) Master trusts
A Master trust is a multi-employer occupational pension scheme in which each participating employer has its own section. The most well-known master trust is the National Employment Savings Trust (NEST). Nest Corporation, the trustee that runs the NEST scheme, is a public corporation. It’s accountable to parliament through the Department for Work and Pensions but is generally independent of government in its day-to-day decisions.