Most occupational pension schemes are set up under a trust.
Protecting pension scheme assets
- A trustee holds the assets of the scheme for the benefit of the members and their beneficiaries in accordance with the scheme’s Trust Deed and Rules.
- A trust structure is intended to deliver a level of member security by keeping the scheme’s assets separate from those of the employer.
- It is the trustees’ duty to act in the best interests of the scheme members and other beneficiaries. This includes monitoring the suitability of all investments.
Trustees must also act within the framework of the law. Pensions law is extensive with a raft of member protection requirements. There are specific areas of legislation which impose requirements on occupational pension schemes, including trust law and specific pensions legislation (supported by Codes of Practice issued by The Pensions Regulator).
The Pensions Regulator is the UK regulator of work-based pension schemes. Its objectives include improving confidence in pensions by protecting members’ benefits and encouraging high standards in the way pension schemes are run.
The People’s Pension Scheme (the Scheme) is a trust-based defined contribution scheme, registered with HMRC and The Pensions Regulator. The People’s Pension Trustee Limited is the Trustee of the Scheme. The Trustee is responsible for the investment of members’ pension accounts held within the Scheme in accordance with any instructions from members.
At present, the Trustee invests all contributions with the Scheme’s investment managers, State Street Global Advisors Limited (SSGA). SSGA is the investment management arm of State Street Corporation, responsible for investing approximately £1.99 trillion worldwide (as at 30 September 2017).
The Trustee invests the contributions in highly regarded, mainstream pooled investment funds accessed via a contract of linked long-term insurance with Managed Pension Funds Limited (MPF).
MPF is SSGA’s flagship UK-domiciled pooled fund vehicle for pension fund investors with £37.2 billion under management (as at 31 December 2017). MPF is a limited liability insurance company of which State Street Corporation is the sole shareholder and MPF assigns investment management to SSGA. MPF is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA and is authorised to effect and carry out contracts of linked long term insurance.
In the event that MPF becomes insolvent, it may be possible for any deficit to be recovered from the Financial Services Compensation Scheme (FSCS). The FSCS website at www.fscs.org.uk advises that for claims relating to long-term insurance policies the maximum compensation is 100% of the claim with no upper limit. However, we believe that this position has yet to be tested.
If the Scheme terminates and the Trustee decides to wind up the Scheme, the Rules of the Scheme oblige the Trustee to set aside such part of each member’s personal account as the Trustee considers is needed to meet any expenses relating to the operation and winding up of the Scheme.
Currently, some members who take retirement benefits from the Scheme do so by securing an annuity with an insurance company. An annuity pays a pension income, usually for life. If the provider of such an annuity were not to meet its obligations due to insolvency, the member may qualify for compensation from the FSCS. The maximum level of protection is currently stated on the FSCS website as 100% of the retirement income the member is drawing down from that product as a benefit falling due.
Further details about the FSCS can be found at www.fscs.org.uk
- If a participating employer were to become insolvent, as the Scheme assets are held under trust they are legally separated from the assets of the employer and would not therefore be available to creditors of the insolvent employer.
- If B&CE Holdings Limited (the Founder) were to become insolvent, as the Scheme’s assets are held under trust, they are held outside of this company and, therefore, they would not be available to creditors of B&CE.
- If the Scheme terminated on the insolvency of the Founder, there is a risk that Scheme assets would be required to meet the costs of administering the wind up of the Scheme.
- If B&CE Financial Services Limited (the Scheme administrator) were to become insolvent, new administrators would be appointed by the Trustee.
- If The People’s Pension Trustee Limited were to become insolvent, new trustees would be appointed.
- If State Street Global Advisors Limited (Investment Manager) were to become insolvent, new investment managers would be appointed. It is possible that the legal investment vehicle held by the Trustee with the Investment Manager could, in extreme situations, be impacted upon by the insolvency but the regulatory structure provides considerable protections
The contributions made to the Scheme buy units in investment funds for the benefit of scheme members. The value of these units can go down or up depending on the way the investments perform and will affect the value of members’ pension accounts. Any investment losses caused by movements in unit prices are not covered by the FSCS.
The trust structure affords protection for members’ interests as the separation of services and legal ownership of scheme assets, which are independently controlled by the Trustee, means that timely, proactive changes can be made to any elements of the service, such as the investment provider.