Group Occupational Pension Schemes

A group occupational pension scheme is a registered pension scheme having a sponsoring employer, for the benefit of a group of employees. Benefits provided can be on a defined benefits basis or a defined contribution basis or a combination of the two.

Like the SSAS, SIPP and QROPS, Group schemes are classed as registered pension schemes by HMRC, yet the requirements for managing them are substantially different. In particular many additional regulatory requirements must be observed.

Traditionally, group occupational schemes have been set up on a defined benefits (DB) basis, with scheme members accruing pension rights according to a specific formula (eg 1/60th of their salary for each year of service). Some schemes base the DB formula on the member’s ‘final’ salary while others base it on the salary earned each year throughout the period of scheme membership.

Less common were schemes set up on a defined contribution (DC) basis, where contributions (by both the employer and the members) are set as a percentage of each member’s salary. With DC schemes the members’ retirement benefits are dependant on the fund which will have accrued in respect of each member.

In recent years the cost of funding DB schemes has risen sharply, due largely to a combination of i) improvements in longevity and ii) reductions in investment returns. Because of this many DB schemes have converted to a DC basis so as to alleviate future funding requirements.

Unlike the SSAS, SIPP and QROPS only a small percentage of members will be trustees. The sponsoring employer would normally appoint a small number of trustees, and the scheme members themselves have the right to nominate one third of the trustees, though in practice they are often content not to exercise this right.

Group schemes are heavily regulated, with more and more responsibility for compliance and effective management being passed to the trustees of such schemes. It is therefore vitally important for the trustees to appoint experienced professional advisers to guide them through the many complexities.

For more information please contact Graham Johnston direct on 01260 226150 (email ) or visit the actuarial consultancy’s website http://www.johnstonactuarial.co.uk