CIMP are occupational pension schemes arrangements established by employers for the benefit of their employees. They are established and run under a trust. Scheme assets are held by the trustees of the trust for the benefit of the scheme members.
From 6th April 2006, all registered pension schemes must have a registered scheme administrator. This role is usually taken on by the scheme trustees unless otherwise stated. CIMPS operate in a similar way to personal pension plans in that benefits are ultimately based on the level of contributions paid by the employer and where applicable the employee along with the resulting performance derived from the investment of those contributions.
Scheme establishment and challenges
CIMPS are generally established under trust with associated trustees and rules. As mentioned above there must also be a registered pension scheme administrator.
Trustees have the following roles:
- Oversee the running of the scheme for the benefit of its members.
- Operate the provisions of the trust according to trust law and pensions legislation.
- Trustees must be appointed when a scheme starts. If a scheme reaches a certain size there must also be one or more trustees nominated by scheme members (member nominated trustees).
Trustees responsibilities include:
- Ensuring that the scheme produces audited accounts or payment schedule.
- Ensuring that the appropriate advisers are appointed, such as legal advisers, auditors, etc.
- Production of schedules of payment to show contributions that been paid into the scheme.
- Production of a statement of investment principles (SIP) for the scheme to use in respect of the investment decisions that will be made.
- Trustee must ensure that the SIP is prepared and maintained. It must also be updated on occasions deemed necessary.
The Challenge
The government has recently published its outcome of consultation in relation to proposed changes to the structure and rates of the general levy on occupational and personal pension schemes. We noted in our weekly update on 4 October 2023 that the government consulted on three options. The first option was to leave the levy rates unchanged (but the DWP estimated that this would result in a deficit of more than £200 million by 2031 and this would need to be addressed in future years). The second option was to increase the levy rate by 6.5% for all schemes. The third option (which was the DWP’s preferred option) was to increase the levy by 4% for all schemes – however, small DC schemes with fewer than 10,000 members would pay a premium of £10,000 from April 2026. The government has decided on option two – a rise of 6.5% each year across all scheme categories for levy years 2024-2025, 2025-2026 and 2026-2027. This aligns with the majority of consultation responses received. Draft regulations have been laid before both Houses of Parliament.
- Increasing levy for running a contracted in money purchase scheme
- Greater responsibilities been put on trustees.
- Increase in cost of running this scheme i.e. auditor’s fees and professional advice fees.
Alternative to a CIMP
Closure and wind up
You may decide that your CIMPS should be closed or wound up. Closure would mean that either no new members will be allowed to join the scheme, or all contributions to the scheme stop. Winding up of the scheme effectively means that it will cease altogether and the assets belonging to members will be moved elsewhere. In this situation you could purchase section 32 buy out plans for each member (normally the default option should members not transfer to another scheme) or could establish a new scheme to which members could decide to transfer.
Employees must be notified of the intention to wind up the scheme. They must be given the option to transfer benefits to their own personal plan if so desired. Do you need help with your existing scheme? Please speak to one of our financial planners