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Other ways of meeting scheme costs

CDC code in force: 1 August 2022

Some trustees will rely on support from their participating employers to meet some, or all, of the costs of the scheme. Others will maintain financial reserves to meet or contribute towards scheme costs – particularly those arising after a triggering event. This module details other financial arrangements we will consider in assessing the financial sustainability of the scheme.

Indemnities, insurance and compensation

We will consider any insurance policies or indemnities held by trustees in relation to running costs or financial resources that provide cover for certain costsOT1. We will need to be satisfied of:

  • the details of the policy or indemnity
  • the provider
  • the policy holder
  • the beneficiary
  • any limitations of the insurer’s liability
  • the security, strength and enforceability of the indemnity
  • the ability of the person providing it to deliver that indemnity
  • the likelihood of any insurance paying out
  • the likely time needed to settle any claim

If the beneficiary of the insurance or indemnity is not the trustee, we may place less weight on its value. We will also consider the cost of any policy in assessing whether it remains a viable part of a scheme’s financial sustainability.

Fixed cost and compensation arrangements

If the scheme has a fixed-cost arrangement with a service provider to provide services regardless of the actual cost to the provider, we will take this into accountOT2. We will need to be satisfied that the trustees have considered any services that might fall outside the agreement and the terms on which it may be reviewed, varied, and renewed.

We will also consider any compensation that might be payable to scheme members after a triggering eventOT3. We will need to be satisfied of the compensation provider, the basis and timescale over which compensation may be payable, and any limits on the compensation available.

We will usually not consider any cover provided by the Financial Services Compensation Scheme (FSCS) as part of the scheme’s financial sustainability requirement. If trustees believe their treatment by the FSCS is likely to be different from other schemes, they should draw this to our attention.

Legal references

OT1 Paragraph 2(j) of Schedule 3 to the Regulations

OT2 Paragraph 2(i) of Schedule 3 to the Regulations

OT3 Paragraph 3(k) of Schedule 3 to the Regulations

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