Position of Pension Fund Trustees
In order to establish a registered occupational pension scheme, it must be set up as an irrevocable trust governed by a trust deed and rules and with the assets of the trust (i.e. the contributions) held by trustees for the benefit of the beneficiaries (scheme members and pensioners). The fund must be kept strictly separate from the employer's assets.
It is common for smaller companies (with annual premiums under about £20,000) to take the (easier) route of using an insurance company to produce documentation, obtain HMRC approval and do the administration. The charges for these services are normally included in the premiums (these tend to represent some 15-20% of the fund value).
The self-administration route involves considerable input on your part but you would also invariably involve external advisors for specialist matters including actuaries, investment managers and auditors. Commonly, the costs of such assistance may not be significantly less than an insured scheme. There are also hybrid options allowing a proportion of the fund to be insured and a proportion to be self-administered.
Small Self-Administered Scheme
For some companies where flexibility in the use of pension funds is important, self-investment and loan-back possibilities may be important and the strict limits on the amount of self-investment (up to 5%) in normal occupational pension schemes may be considered overly restrictive. Where appropriate therefore, Boards of smaller companies may consider establishing a small self-administered scheme (SSAS) which allows self-investment of up to 50% of the fund (25% in the first two years). SSAS pensioners have ten years from retirement (up to 75 years of age) to draw their pension and purchase an annuity. An SSAS is generally subject to fairly strict HMRC scrutiny.