The DSS conditions that will apply to stakeholder pension schemes can be broadly categorised into th...
The DSS conditions that will apply to stakeholder pension schemes can be broadly categorised into the following areas: charges, governance, investments, disclosure, registration, and winding-up provisions.
The charge must not be more than 1/365% for each day on which the fund is held. Schemes are permitted to calculate the value of the fund on a daily, weekly or monthly basis. The value of a member's rights may be reduced by any expenses incurred by the trustees/manager in providing an annuity (or income, otherwise than by an annuity) for the member, and by any charges in respect of pension sharing costs.
Where any stamp duty or other charges are incurred directly in the sale or purchase of securities or property held for the purposes of the scheme, the value of a member's rights under the scheme may be reduced by those charges and the scheme funds are calculated net of such costs.
The value of a member's rights may also be reduced by the payment of any pension credit, by the return of any excessive contributions as required by Inland Revenue practice and by any 'lien' caused by the member's criminal, negligent or fraudulent act.
Any service, other than the management of the scheme and its funds, must (unless it is free, or it is within the maximum charge limit) be provided under a contract separate from any contract of membership. The contract must be in writing and must set out the amount of any charge for the service and the terms on which it is paid.
It cannot be a condition of membership of the scheme that any person enter into any contract, other than the contract of membership of the scheme.
Governance of stakeholder schemes can either be trust-based or contract-based. Trust-based schemes will be set up under trust law (and overseen by a board of trustees). Contract-based schemes will be set up under contract between the members and a stakeholder manager authorised by the Financial Services Authority.
For trust-based schemes at least one trustee, and at least one-third of the total number of trustees, must be independent from the providers of services to the scheme or scheme manager. There is no requirement for member-nominated trustees, or the appointment of professional trustees.
Schemes will be able to remunerate trustees but the costs must be met out of the overall charges levied on scheme members.
Trustees may enter into contracts for the provision of administration and investment management services with providers. No maximum lock in is prescribed - it will be for trustees to negotiate the length of contract, taking into account the circumstances of the scheme and the best interests of scheme members. Trust-based schemes may restrict membership by reference to employment with a particular trade or profession or by reference to membership of a particular organisation.
Trust-based stakeholder schemes are treated as occupational pension schemes for the purposes of the Pensions Act 1995. This means that they are subject to all the provisions of the Act and, for example, will have to prepare and maintain a statement of investment principles and appoint an auditor and (if they hold investments) a fund manager. They can not take professional advice except from an adviser formally appointed by them and must have an internal dispute resolution procedure in place.
Trust deeds must prohibit trustees from breaching any of the statutory requirements including the minimum standards. Contract-based schemes may not restrict membership by reference to employment with a particular employer, or in a particular trade or profession or by reference to membership of a particular organisation. Members' rights in the scheme are governed by the terms of the contract with the manager. Like trust based stakeholder schemes, the scheme will register with Opra and the manager will be responsible for the scheme's compliance with the minimum standards.
Where a scheme holds funds on deposit (other than temporarily in the course of dealing in assets), the trustees/manager must ensure that they derive a return on a daily basis that is, net of any fees or charges, not less than the base rate minus 2% a year. Where the base rate is increased, the return must be within minus 2% within one calendar month. Where scheme assets are in unitised insured funds, there must be no bid/offer spread. Where all or any of a stakeholder pension scheme's assets are invested in a with profit fund, the fund must not include any non-stakeholder pension scheme assets.
Before investing in a with-profits fund, the trustees/managers must obtain a written contract from the insurer that the insurer will, for any period that the stakeholder scheme has assets invested in the with-profits fund:
l provide information to the trustees/managers as is necessary to allow them to comply with the maximum charge limit;
l ensure that members of the stakeholder scheme will not be treated less favourably than any other members of stakeholder pension schemes who may have assets invested in the with-profits fund;
l provide any certificates from the auditor and actuary to the company that are necessary to allow the stakeholder pension scheme's auditor or reporting accountant to certify that the maximum charge limit has been complied with;
l ensure that no investments are made in the fund other than the investment of stakeholder pension scheme assets; and
l take such steps as are necessary to comply with the annual certificate.
Each member (and this includes pensioners who have opted for income drawdown) must receive a statement of the value of their rights under the scheme within three months of the end of each statement year.
A statement year is any period of 12 months beginning on a date chosen by the trustees/managers on or before the scheme is registered.
All schemes must make a declaration in writing stating that during the last 12
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