Most large employer pension schemes in the UK are trust-based. The NHS Pension, Teachers’ Pension, and the majority of defined benefit schemes are trust-based, as are many modern defined contribution master trusts (NEST, The People’s Pension, Smart Pension). Understanding what this structure means for you as a member helps you understand your rights and protections.
Trust-Based vs Contract-Based Pensions
| Feature | Trust-Based Scheme | Contract-Based Scheme (GPP) |
|---|---|---|
| Legal structure | Pension assets held in a trust | Individual contracts with insurer |
| Who governs it | Board of trustees | Insurance company (FCA-regulated) |
| Regulator | The Pensions Regulator (TPR) | Financial Conduct Authority (FCA) |
| Member-nominated trustees | Required by law (min 1/3) | N/A |
| Dispute resolution | TPR, Pensions Ombudsman | FCA, Financial Ombudsman Service |
| Asset separation from employer | Yes — held in trust | Yes — held by insurer |
| Common examples | NEST, NHS Pension, DB occupational schemes | Aviva, Scottish Widows GPPs |
The Role of Trustees
Trustees are the key governance layer in a trust-based scheme. They have legally binding duties:
- Act in the best interests of members — at all times, above the interests of the employer
- Select and monitor investments — review fund performance and costs regularly
- Ensure contributions are received — if an employer fails to pay contributions on time, trustees must report it to TPR
- Oversee scheme administration — benefit calculations, member communications, complaint handling
- Report material issues to TPR — including employer financial difficulties that threaten the scheme
Member-nominated trustees sit on the trustee board as member representatives. You may have the opportunity to stand as a member-nominated trustee for your scheme.
Types of Trust-Based Scheme
Single-employer trust: Set up by one employer for its own employees. Governed by the employer’s appointed trustees and member-nominated trustees. Common in large public sector and established private sector companies.
Master trust: A multi-employer occupational pension scheme under a single governance structure. Multiple employers participate, but each employer’s members are invested in separate sections. Examples: NEST, The People’s Pension, NOW: Pensions, Smart Pension. All master trusts must be authorised by TPR under the Pension Schemes Act 2021.
Master Trusts — Why They Are Now Dominant
Auto-enrolment (begun 2012) created demand for ready-made trust-based schemes that small employers could join without establishing their own trust. Master trusts filled this gap. They offer:
- Professional trustee governance without employer burden
- Scale benefits — lower investment costs
- TPR authorisation requirements — only approved master trusts can operate
- FSCS-style protection is not applicable, but TPR oversight is strong
NEST (National Employment Savings Trust) is the government-backed master trust, open to any employer and any employee. It was established specifically to ensure all workers have access to a qualifying auto-enrolment scheme.
Your Rights as a Trust-Based Scheme Member
- Internal dispute resolution: All trust-based schemes must have a formal dispute resolution process
- Pensions Ombudsman: If your dispute is unresolved, you can escalate to the Pensions Ombudsman (free, binding decisions)
- Annual statements: Trustees must provide benefit statements at least annually
- Chair’s statement: Master trusts must publish an annual chair’s statement covering governance, costs, and investment performance
- TPR action: You can report concerns about your scheme to The Pensions Regulator