Why would anyone set up a trust-based scheme today?
Matthew Mitten, Partner at Secondsight, has produced an opinion article for Pensions Expert on trust-based or contract-based pension schemes and how employers can choose.
Not so long ago, trust-based pension schemes were the only option in town.
The format is pretty simple: a board of trustees takes responsibility for investing your money, manages the audit of the scheme, and the administration of the fund on your behalf.
But in the 1980s a new breed of pension burst onto the scene: the contract-based defined contribution scheme.
The shift toward contract-based schemes has been gradual but they are becoming increasingly popular.
In fact, if you were to give a company a blank piece of paper to design a scheme today, it is unlikely they would entertain the idea of the trust-based format.
Having said that, governance is an area where trust-based schemes have an advantage, albeit a small one.
In a trust-based scheme, trustees shoulder responsibility for looking after members’ money, investment performance and meeting investment managers.
While this can be seen as an advantage, is it enough of a draw for employers, especially when some people consider this a disadvantage?
Ask any insurer and they will all say the same thing: the biggest movement of money is going from trust-based to contract-based schemes. But why?
Read the article in full here