It's important that trustees ensure their pension scheme delivers good outcomes for members' retirement savings, whether it is a scheme offering defined benefit (DB) or defined contribution (DC) benefits.
There are many advisers and service providers who can help you make decisions about running your pension scheme, providing advice to help you manage it efficiently.
Key points
- Trustees of schemes offering DC benefits need to ensure that they comply with their legal duties and also meet the standards set out in our DC code.
- Trustees of schemes offering DB benefits need to work with the scheme’s employer and their advisers to make sure there is enough money in the scheme to pay members’ pensions as and when they become due.
- Advisers and service providers can help you run your pension scheme efficiently.
Schemes offering DC benefits
Trustees of schemes offering DC benefits (also known as ‘money purchase benefits’) must meet the standards set out in our code of practice when complying with their legal duties. The code includes areas such as:
- the governing body
- administration
- investment governance
- value for members and charges
- communicating and reporting
The methods you adopt to meet the standards will depend on the nature of your scheme and its membership.
Trustee toolkit online learning
The module 'How a DC scheme works (2014)' covers risks to good member outcomes, contribution structures, transaction processing, value for money, charges, decisions at retirement and member communications. You must login or sign up to use the Trustee toolkit.
Schemes offering DB benefits
You will need to work with the scheme’s employer and your advisers to make sure there is enough money in the scheme to pay members’ pensions as and when they become due.
The amount of money required will be based on many things, such as:
- how many members there are
- whether members are continuing to accrue benefits
- the employer’s ability to support the scheme
- how much the pension benefits they have been promised are valued at
- many other assumptions such as how long the members are likely to live and what the return on investment may be
Technical provisions
You need to work out how much money it is prudent to have in the scheme now to pay benefits as they fall due, assuming that the scheme is not wound-up prematurely. This figure is the funding target (also known as technical provisions).
To work out the funding target, the trustees and employer will need to agree the long term goals for the scheme together with the risks they are willing to assume on uncertain matters. Uncertain matters could be factors such as investment returns and how long members are likely to live.
For more information on working out the funding target, go to deciding your funding approach.
You will also need to agree with the employer a schedule of contributions to fund the scheme sufficiently to meet its technical provisions and maintain this level of funding. You should have regular valuations, every three years, to check whether the statutory funding objective is met. Where it isn’t, you’ll need to work with the employer to agree on a recovery plan.
Trustee toolkit online learning
A module called 'Funding your DB scheme' covers various assumptions used to measure the funding position of a scheme, and the different measures used to determine the funding levels of schemes. You must login or sign up to use the Trustee toolkit.
Employers, advisers and service providers
The relationship you have with the employer can be a key factor in how well your scheme is run. You should encourage the employer to take an active interest in running their scheme.
To avoid issues surrounding conflicts of interest, you and your employer may need to get separate independent advice from appropriate professionals to help you make decisions. Go to conflicts of interest in your DB scheme or conflicts of interest in your DC scheme.
You can use your powers to delegate some functions, but you still retain accountability. For your scheme to run successfully, everyone needs to know exactly what their role is and what they must do.
Although many people may make decisions about the scheme every day, you are ultimately accountable for these decisions. It is therefore important that you put processes in place to monitor the actions of all the other parties. These processes are called internal controls and are key to making sure your scheme runs smoothly.
Trustee toolkit online learning
The tutorials 'Introducing advisers and service providers' and 'Appointing advisers and service providers' in the module 'Running a scheme' will tell you more about the people you can turn to for advice to help your scheme efficiently. You can also download a guide to the most common advisers and service providers from this module. You must login or sign up to use the Trustee toolkit.
Employers
You must agree with the employer how they will ensure they provide you with accurate and timely member information.
If you’re running a scheme with defined benefits, you should agree with the sponsoring employer:
- methods and assumptions to be used in calculating the scheme’s technical provisions
- the statement of funding principles
- any recovery plan
- the schedule of contributions
The law sets deadlines by which these need to be agreed. See statement of funding principles for more information about the dates.
If you’re running a defined contribution scheme you should agree the payment schedule with the sponsoring employer.
Pension providers
You may have delegated the management of the scheme to look after the day-to-day administration of the scheme to a pension provider. This might include adding new members and ensuring records are complete and accurate. You should have a clear agreement with the provider about what services they are providing to you, to what standard, what action will be taken if the service falls short of that standard and who pays for the remedial work.
Administrators
You may want to use the services of an administrator to put appropriate processes in place to ensure proper record-keeping, to capture and manage scheme data. Administrators may also provide member communication services, sending out annual statements and other member documentation.
Investment consultants
You may hire an investment consultant to help with investment decisions, to monitor the portfolio and fund managers. They will understand, and be able to clearly explain, the investment options available to schemes.
Actuaries
If you’re running a defined benefit scheme, you are required to have a named scheme actuary to help advise on scheme funding.
They will conduct actuarial valuations and advise on issues like transfer values, the drawing up of the statement of funding principles, and the choice of appropriate valuation assumptions.
Fund managers
You should consider what investment advice you need, and take account of that advice when you receive it. If you have a professional investment fund manager, you will not be responsible for investment choices if you have taken all reasonable steps to satisfy yourself that the fund manager:
- has the appropriate knowledge and experience for managing the scheme investments
- is carrying out his work competently and in line with the statutory requirements concerning choice of investments
The investment activities of UK fund managers are regulated by the Financial Conduct Authority.
Accountants
You will need an accountant to:
- prepare the pension scheme accounts for audit
- reconcile investment transactions
- liaise with auditors and investment managers
- prepare self-assessment tax returns
- provide assistance with cash books and pensioner payrolls
Your accountant may also be responsible for reporting activities.
Financial advisers and annuity brokers
You may want to engage an independent financial adviser (IFA) to provide advice to you or your members. If you engage an IFA on this basis, you may want to consider whether it would be preferable to appoint a different adviser to the one the employer is using, so that the members can feel confident in the independence of the advice they are receiving.
If you run a DC scheme you may wish to appoint an IFA or an annuity broker to assist members during the retirement process. An IFA can provide regulated financial advice and recommend a specific product. An annuity broker can help members purchase a retirement income product. Make sure members understand who pays for the advice.
Lawyers
You are not legally required to appoint a legal adviser to your scheme, but it is good practice to do so. If you need any legal advice you cannot, by law, rely on that advice unless the lawyer is specifically engaged to advise the scheme.