Trusts and pension schemes: pension schemes: what are they?
An employer, company or partnership may create a pension scheme to provide retirement benefits for its employees. This is done by appointing trustees to hold a fund into which contributions will be made. The employer transfers assets into the name of the trustees to form the fund. The trustees control the investments, but usually appoint managers for the day-to-day running of the fund. Regular payments are made into the scheme by both the employer and/or the employees, which are then invested by the trustees. Investments may include a variety of shares and other securities, including unit trust units, within the scope of stamp duty and Stamp Duty Reserve Tax (SDRT).
Each member of the scheme is entitled to benefits deriving from the scheme, but has no entitlement to assets within the fund.
A transfer of assets into the name of the trustees on creation of the fund will not normally constitute a transfer on sale attracting ad valorem duty. Rather it will normally be a transfer otherwise than on sale that is not chargeable with stamp duty.
The majority of pension schemes are ‘registered’, that is to say they are registered with HM Revenue & Customs (HMRC) and meet the conditions of registration (please refer to the Registered Pension Scheme Manual (RPSM)) for further information. Previously schemes were ‘approved’ pension schemes if they had been referred to Pension Schemes Office of HMRC and their rules approved by that Office.
On 6 April 2006, all approved pension schemes automatically become registered pension schemes. Registered Pension Schemes can benefit from certain tax exemptions. Any unregistered pension scheme cannot benefit from the tax exemptions previously applicable to approved schemes.
Individuals may also plan and invest for their own retirement through personal pension plans where the contributions are again held and invested by trustees appointed for the purpose. It is also possible for individuals to invest in their own Self Invested Personal Pensions (SIPPs) in which case, whilst the funds are held by trustees, the investment decisions are made by the individual.