What is the difference between the following: 1. Sponsor 2. Provider 3. Employer 4. Trustee under benefit scheme? Also, what is the difference between benefit scheme and pension scheme? Help needed, thanks!
The sponsor is the entity that sets up the scheme, usually this is the employer. The sponsor's role includes defining membership requirements and rules, benefits, contribution levels, investment choices and (in most cases) it will also make contributions. The sponsor will usually choose to outsource some of these tasks (e.g. outsourcing the investment solutions to an investment manager). In a defined benefit scheme the sponsor is also financially liable for the solvency of the scheme, and must aim to ensure that the assets are always high enough to cover the liabilities. The provider is the company which actually administers the scheme. In the UK this will usually be a big life insurance company such as L&G, Aviva, Prudential, Standard Life, etc. The employer should be fairly obvious. The trustee is responsible for running the scheme in line with both the law and the trust deeds and rules. They must do so in the best interests of the members (i.e. not the employer) and act impartially. Trustees are usually a mixture of people who are chosen by the sponsor and people who are voted in by the members. If anything goes wrong in the scheme, trustees may be personally liable, and so they will often seek professional advice (mainly from actuaries!) when making decisions.
Hi Jenna, When I first started CA1, I didn't have a clue about pensions, and I found it helped to do a bit of roleplay ... Let's imagine you work for Tescos and that you're part of their pension scheme. Tescos is your EMPLOYER. Tescos might contribute 5% of your pay into the pension scheme, and in addition, you contribute a further 3%. In this case, both you and Tescos are SPONSORS. Your pension is very important to you, and so you might be a bit worried that Tescos suddenly changes the rules or steals your money. And because Tescos is so big, it's bound to win any argument between you and it. That's where the TRUSTEES come in. They're acting in your best interests to make sure that Tescos keeps its promises and acts responsibly. I think the term PROVIDER is a bit ambiguous. Provider of what? It could be as cjno1 suggests. Alternatively (for example) when you reach retirement, you might use your pension fund to buy an annuity from an insurance company. In this case, the insurance company is a provider. A pension is a specific type of benefit. So a benefit scheme might be a pension scheme. But more generally, a benefit scheme might also provide other benefits too.
Thanks for the detailed explanation! Can I say life insurance contract (eg. Term assurance, endowment...), state benefits, annuities, pension are all categorised under benefit schemes then?
If the life insurance is part of a package provided by someone, then yes. So for example, an employer might provide a package that includes a pension, life insurance and private medical insurance. But if you buy an individual term assurance policy, then no, it wouldn't be classified as part of a benefit scheme. I suppose that you could say that state benefits are part of an overall state benefits package, but I think you'd normally just call them state benefits
This thread clearly differentiates between a sponsor and provider, a distinction which I was not sure of, so took them as interchangeable. Thanks Jenna for asking the question!
