Trust based and contract based schemes
Trust based –
- employer sponsored pension scheme governed by a trust deed and a board of trustees that oversees the scheme. Eg an occupational money purchase pension scheme
- operates on a net pay basis
- offers its members the protection of trustees managing the scheme with their skills
- DB schemes are always trust based
Contract based –
- It is outsourced by an employer to a third party to manage everything. Eg a GPP or group SHP
- Contributions must be paid from earnings post tax, ie relief at source
- It is less costly for the employer
Question - Use Your Note Taker To Jot Down Ideas / Calculations
When considering the differences between a trust based pension scheme and a contract based pension scheme, it is CORRECT to say that:
You must select ALL the correct options to gain the mark:
a) an employer wishing to set up a money purchase scheme for their workforce must use a trust based scheme.
b) a contract-based scheme is more costly for employers to run than a trust-based scheme.
c) trust based and contract based money purchase schemes are broadly the same in terms of the benefits they can offer.
d) member contributions to a trust-based scheme can be made on a ‘net pay’ basis, but must be made using the relief at source method to a contract based scheme.
e) employees typically see membership of a contract-based scheme as a less valuable benefit than membership of a trust-based scheme.
C, D & E)
Chapter reference 5B1