There can be subtle differences in the role of trustees, especially in stakeholder plans where there are often choices between trust and contract-run models, says Sue Ward
If you read nothing else, read this ...
- It is possible to set up a trust to look after a group personal pension or stakeholder scheme, though such arrangements are rare.
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Occupational pension schemes, whether defined benefit (DB) or defined contribution (DC), almost always have trustees looking after them. They are there to look after the interests of the beneficiaries and supervise the administration. And in a DC scheme, they will select the series of investment options to be offered to the members (whether these number only one or two or hundreds) although the individual has the final choice.
In contrast, a group personal pension (GPP) or group stakeholder arrangement is no more than a collection of individual contracts. The employer or affinity group has no legal status, although in practice with the larger GPPs someone in the pensions or HR department will build up a relationship with the provider's customer services department.
However, it is possible to set up a GPP or stakeholder scheme with trustees. When the government originally promoted the idea of stakeholder pensions, it created the legal rules to allow them to be run on either a trust- or a contract-basis. The insurance companies favoured the contract alternative, as it is easier for them to run and, in practice, very few trust-based schemes exist.
One of these is the stakeholder scheme set up by the Trades Union Congress (TUC), with trustees appointed by their General Council and the Prudential as provider. Michelle Lewis, the TUC's pensions policy officer and secretary to the trustee company, explains: "TUC Stakeholder Trustees Ltd has been set up as a limited company. The relationship between the TUC and the Prudential is in a contract which details the respective roles of the Prudential and the trustees, and covers areas like disputes, service level agreements, and charges." This does not leave the individual out of the loop because there is also a contract between the member and the Prudential.
Lewis sees advantages in this structure. "It means there is something between the members and the Pru. Members on their own will have less leverage than a trustee body which is representing a whole group of people. It gives the opportunity to ensure that there is the level of service individuals would expect."
If this structure was used more widely, it could help to boost a scheme's take-up by giving members a bit more confidence that the scheme will actually deliver. But Tristan Mander, pensions lawyer at solicitors Ward Hadaway, is sceptical: "Trust-based GPPs are probably better than GPPs as they stand, but I feel they are a very poor cousin to trust-based occupational schemes. The idea of a consumer's champion overseeing the GPP provider and advising members could also be provided outside of a trust structure, such as a not-for-profit advising body. I really cannot see why trust-based GPPs would be better for recruitment. Frankly, it would be confusing to candidates. Is it a company scheme or not?"
And he concludes: "For pension simplicity's sake, let's not popularise yet another hybrid benefit category."