DC WIND-UP

Although the number of members participating in defined contribution schemes (also know as ‘money purchase’ or ‘DC’) is far lower than those in defined benefit/final salary schemes, in terms of the number of actual schemes, DC is well out in front.

Defined Contribution ‘Executive Benefit Plans’ have been a very popular way to provide retirement benefits for owners of small businesses, or to top up the pension benefits for senior staff who were restricted by the Earnings Cap under the old tax regime.

Since A-Day on 6 April 2006 (following the Finance Act 2004), the restrictions on how pension benefits can be accumulated have been relaxed. One particular aspect is that of ‘concurrence’. Under the old tax regime, individuals could not participate in an occupation pension scheme and save in a Personal Pension Plan (‘PPP’) in respect of the same employment. It is for this reason that any top up arrangements for senior executives had to be established under a trust-based occupational pension scheme. One of the (admittedly few) benefits of the ‘simplification’ introduced on A-Day is that concurrency is now permitted. As a result of this relaxation, the tax-planning reasons for having a trust-based occupational pension scheme alongside a ‘main’ scheme no longer apply. 

The responsibilities that the trustees carry in respect of these schemes still do apply, however, and the governance burden must be borne without any corresponding tax-planning rationale. Alexander Forbes Trustee Services are happy to replace the existing trustees as sole independent trustee in order either to continue the scheme, ensuring that it complies with the regulations and legislation that apply; or to wind the scheme up and settle the members’ benefits, thereby removing this compliance and governance problem.

Not all DC schemes are set up for the benefit of senior employees. Occupational DC schemes have been very popular, but may no longer meet the needs of the sponsoring company. If this is the case, we would be happy to work alongside, or replace, the existing trustees in order to shoulder the governance burden of the scheme, or to deal with an orderly wind up of the scheme.

Please contact us if you wish to discuss this solution further.