Provident Funds and Savings Plans
A well structured Provident Fund / Savings Plan can be particularly beneficial for employers who want to retain key staff and be seen to promote not only a savings and retirement culture, but encourage motivation and retention.
The plan consists of the following basic elements:
- Discretionary Trust
- Scheme Rules
- Protector / Committee
The Discretionary Trust covers the wide ranging provisions of the Scheme, which are more clearly defined in the Scheme Rules. The Scheme Rules will specifically set out such items as the length of service required to qualify for retention of benefits, whether there will be employers’ and employees’ contributions, what happens in the event of death in service, redundancy, dismissal or retirement, what the retirement age is and any other number of items including what the position is in the event of termination of employment. It is possible for the employer to set up the Scheme in such a way that any employer’s contributions into the Scheme can be taken to be first and foremost in satisfaction of any legal obligation. It will also cover the investment options available.
The employer will typically set up the Scheme by completing an application form, which the Trustee then turns into a set of Scheme Rules and a Discretionary Trust Deed, in conjunction with local Guernsey advocates, which meets the needs of the employer. The employer will typically nominate a Protector or, more usually, a Committee to advise the Trustee. This will typically consist of elected nominees of the employer such as the Finance Director and the Managing Director, although the choice of constitution of the Committee is at the discretion of the employer.
To ensure attraction and retention of key staff and as part of a succession planning programme, to motivate higher performance and profitability or to reward performance.
It is usual for the administration department of the employer company to liaise closely with the Trustees in advising them of any new joiners to the company and the details of their subscriptions and benefits and also to advise them of any leaving members, death in service etc to enable the Trustee to make any necessary payments from the Scheme.
The Trustee will normally wish to appoint an Investment Manager to provide investment advice to the Trust Scheme. Typically, the Trustees in conjunction with the employer or the Committee will seek to have a range of investment options available to employees which typically consists of a conservative, balanced and high growth portfolio. This ensures the employer and employee can match the suitability of the investment chosen to the needs of the employee and keeps matters as simple as possible by restricting the investment choices to a small number of options.
It is necessary to have due diligence provided for all new and existing members of the Scheme, which typically can be taken on and provided by the administration department of the employer company.