Refund of contributions means trust trend will continue

Trust-based schemes will remain attractive to some employers post-2012, whether or not the FSA attempts to restrict them, said delegates at the Corporate Adviser DC Summit.

Delegates said that even though the FSA has written to insurers telling them attempts to bypass the Retail Distribution Review (RDR) for group pensions by switching to trust-based propositions will not be acceptable, such solutions would remain of value to employers because of contribution refunds for occupational schemes.

The regulator has written to the ABI telling it attempts to ‘subvert’ the FSA’s RDR by moving to trust-based arrangements were under regulatory scrutiny.

Andy Barton, employee benefits and direct distribution director at Scottish Widows, said the RDR was likely to prohibit employers from setting up schemes as a means of reducing their auto-enrolment bill.

“In the last couple of weeks the FSA has made clear it doesn’t like the idea of synthesised trusts, or occupational schemes generally, being used to sidestep the RDR requirements,” Barton said.

Trust-based schemes currently remainthe sole way in which employees can have their contributions refunded should they choose to exit the scheme within two years of membership, leaving the employer able to recoup their own contributions. Such a situation is not permissible under contractbased arrangements and will not be allowed in the proposed system of personal accounts.

Barton added: “It’s early days but it’s likely there will be some regulation or enforcement that means that we get back to a level playing field [between contract and trust-based DC].”

Steve Herbert, head of benefits strategy at Origen, said setting up a trust-based scheme “smacked of avoidance” and added that most small and medium-sized employers preferred the simplicity of contract-based arrangements.