Trust-based defined contribution schemes will become "significantly" more popular with employers in ...
Trust-based defined contribution schemes will become "significantly" more popular with employers in the run up to the 2012, Hymans Robertson believes.
The consultant says employers will look for ways to offset auto-enrolment costs - particularly in the tough economic climate - and trust-based DC schemes could reduce the auto-enrolment bill by around 10%.
Hymans Robertson senior benefits consultant James Mullins says government estimates put the projected payroll costs of auto-enrolment legislation at around £2.9bn a year.
He says: "An easy way to offset some of the auto-enrolment costs is for companies to use a trust-based DC scheme.
"This type of pension scheme is the only way for companies to benefit from the employer contributions that are left behind when a member leaves with less than two years' service and opts for a refund of their own contributions."
Mullins says members who leave a trust-based DC pension scheme with less than two years' service have the option of either transferring their whole DC fund to another pension arrangement or taking a refund of their own contributions.
He explains despite the fact the transfer option is more valuable in the long-run, Hymans Robertson's experience is that many members still opt for the "cash-in-hand" refund of their own contributions.
When a refund is paid, the employer contributions paid on the member's behalf are left behind in the pension scheme to the benefit of the employer.
However, with group personal pension plans - or personal accounts from 2012 - companies do not benefit from left over employer contributions because in these arrangements, when an employee leaves they only have the option of a transfer or to leave the whole of their fund (including employer contributions) with the provider.
Mullins adds: "Depending on the levels of staff turnover for employees in their first two years' of service, a DC trust-based pension scheme could reduce a company's auto-enrolment costs by around 10%.
"For many employers this significant saving could offset the costs of running a trust-based scheme for their employees
