How To Set Up An Occupational Trust In The UK

Setting up an occupational trust in the UK can be a vital step for employers looking to provide long-term benefits for their employees, particularly in the form of workplace pensions. These trusts not only safeguard the pension assets but also ensure that they are managed in the best interests of the employees. Understanding the process of establishing an occupational trust can seem complex at first, but with the right guidance, it becomes much more straightforward.

At Blackstone Solicitors, we specialise in trust law, offering tailored legal services across England and Wales. This article provides a clear, step-by-step guide on how to set up an occupational trust in the UK, explaining the legal structure, key parties involved, and practical considerations you should be aware of.

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What Is an Occupational Trust?

An occupational trust is a legal arrangement where assets, typically workplace pension funds, are held in trust for the benefit of employees. The funds are managed by trustees who are responsible for ensuring that the assets are used only to provide the benefits outlined in the pension scheme. The trust is legally separate from the employer’s finances, providing protection for the employees’ pension benefits, even if the employer faces financial difficulties.

Step-by-Step Guide to Setting Up an Occupational Trust

If you’re considering setting up an occupational trust, there are several steps involved to ensure the trust is established correctly and operates in compliance with UK law. Below is a detailed guide to help you through the process.

1. Determine the Purpose of the Trust

Before setting up an occupational trust, it’s essential to be clear on its purpose. In most cases, the primary objective will be to manage a pension scheme, but occupational trusts can also be used for other employee benefits such as death-in-service payments or disability benefits. Understanding the purpose will help shape the structure and rules of the trust.

For example, if the trust is specifically for a defined benefit pension scheme, the rules and responsibilities will differ from a defined contribution scheme, and this will need to be reflected in the trust’s legal documents.

2. Draft the Trust Deed

The trust deed is the cornerstone of the occupational trust and serves as the legal document that governs how the trust will operate. It outlines the terms and conditions of the trust, including how contributions will be made, how the funds will be invested, and how benefits will be distributed. The trust deed must comply with relevant UK legislation, including the Pensions Act and The Pensions Regulator (TPR) requirements.

Key elements to include in the trust deed are:

• Roles and Responsibilities: Specify the roles of the trustees and the employer, detailing how trustees will be appointed or removed and the extent of their powers.
• Contributions: Set out the employer’s and employees’ contributions to the pension fund, including how often these will be made and under what conditions they might change.
• Investment Strategy: Outline how the funds will be invested and any restrictions or guidelines on investment types.
• Benefit Payments: Define when and how benefits will be paid out to the employees, whether as lump sums, annuities, or other forms of pension payment.

It is highly recommended to seek expert legal advice when drafting the trust deed to ensure it meets legal standards and accurately reflects the intentions of the employer and the needs of the beneficiaries.

3. Appoint Trustees

Trustees are a critical component of any occupational trust. They are responsible for managing the assets in the trust and ensuring compliance with the trust deed and applicable regulations. Trustees can be individuals or corporate entities, and in many cases, a mix of both is preferred for balance and oversight.

When appointing trustees, you’ll need to consider the following:

• Number of Trustees: The Pensions Act requires that at least one-third of the trustees must be nominated by the employees if the pension scheme has more than 100 members. However, smaller schemes may not require this.
• Trustee Experience: Trustees should have a good understanding of pension regulations, investment strategies, and fiduciary duties. While professional trustees are often engaged for their expertise, employee-nominated trustees can offer valuable insight into the needs and expectations of the beneficiaries.
• Trustee Responsibilities: Trustees have a fiduciary duty to act in the best interests of the beneficiaries. They are responsible for managing the pension assets, ensuring compliance with regulations, and making informed decisions about investment strategies and benefit payments.

Trustees should be aware that they are personally liable for the decisions they make, which is why many trustees take out liability insurance to protect themselves in case of unforeseen issues.

4. Register the Trust

Once the trust deed has been finalised and trustees appointed, the occupational trust must be registered with The Pensions Regulator (TPR). This is a legal requirement for all occupational pension schemes in the UK. The registration process involves providing detailed information about the trust, including the names of the trustees, the purpose of the trust, and the terms of the pension scheme.

During the registration process, TPR will also assess whether the scheme is compliant with relevant pension regulations. Trustees will need to provide ongoing reports and updates to TPR, particularly regarding the financial health of the pension scheme and its compliance with funding regulations.

5. Establish a Funding and Investment Strategy

An essential part of managing an occupational trust is ensuring that there are sufficient funds to meet future pension obligations. This involves setting up a funding plan and an investment strategy that aligns with the trust’s long-term goals.

• Funding Plan: Trustees need to ensure that employer and employee contributions are sufficient to cover future pension liabilities. In a defined benefit scheme, for example, the trustees will need to monitor the scheme’s funding position regularly and may need to negotiate additional contributions if there is a shortfall.
• Investment Strategy: Trustees must develop an investment strategy to grow the pension fund over time. This may involve working with professional investment managers to create a diversified portfolio that balances risk and return. The strategy must align with the needs of the beneficiaries, taking into account factors such as the age profile of the employees and the scheme’s expected payout schedule.

6. Ensure Compliance with Ongoing Obligations

Setting up an occupational trust is only the first step; trustees must also ensure that the trust remains compliant with its legal obligations. This includes:

• Annual Reporting: Trustees are required to submit annual reports to TPR, detailing the financial health of the pension scheme, its investments, and any issues that have arisen. The reports must also include an actuarial valuation if the scheme is a defined benefit pension scheme.
• Member Communication: Trustees must keep the beneficiaries informed about the trust’s performance, their individual benefits, and any changes to the pension scheme. This includes providing annual benefit statements and updates on investment performance.
• Compliance with Pension Law: Occupational trusts are subject to strict pension regulations, and trustees must stay up to date with any changes in legislation. This includes ensuring compliance with funding requirements, tax laws, and data protection regulations.

7. Seek Professional Advice

The legal and financial complexities involved in setting up and managing an occupational trust mean that professional advice is often essential. At Blackstone Solicitors, we offer expert guidance to employers, trustees, and beneficiaries on all aspects of occupational trusts, from drafting trust deeds to ensuring compliance with pension regulations.

Our team can help you navigate the process of establishing a trust, appointing trustees, and managing the ongoing obligations associated with running a workplace pension scheme. With our support, you can be confident that your occupational trust is set up correctly and in line with UK law.

Conclusion

Setting up an occupational trust in the UK is a valuable way to manage workplace pensions and provide long-term financial security for employees. By following the key steps outlined in this guide—defining the purpose of the trust, drafting a robust trust deed, appointing responsible trustees, and ensuring ongoing compliance—you can establish a pension scheme that safeguards employees’ benefits while fulfilling your legal obligations as an employer.

How we can help

We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership

How to Contact Our Private Client Solicitors

It is important for you to be well informed about the issues and possible implications of dealing with trusts. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Trust solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Blog, News Tagged as

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