Occupational Pension Schemes
There are two types
- Final Salary (defined benefit) – the pension the employee receives is calculated as a proportion of salary at retirement. Final salary schemes have become too expensive so few employers now offer these
- Money Purchase (defined contribution) – An agreed contribution is invested for each members. The fund at retirement is used to purchase benefits.
Personal and Stakeholder Plans
•Offered by insurance and investment companies •Owned by the individual •Accumulated fund is used to provide income in retirement •Stakeholder plans are personal pensions with the government set standards for charges, access and terms (remember as CAT)
Self Invested Personal Pensions
•Known as SIPP •Still a Personal Pension •Allows the plan-holder a wider range of investments including commercial property making this suitable for business owners •The SIPP can borrow up to 50% of the fund value subject to lender’s criteria •Usually more expensive but possible to find low cost and deferred SIPPs
Group Schemes
•Many employers offer access to a group personal pension plan (GPP) •Each employee has their own plan •The employer collects the contributions and pays to the provider •These larger schemes often mean lower charges •Employers can set conditions and will often match individual contributions to a certain amount (FD scheme is 7.5%) after a minimum period of employment
Workplace Pensions
- A new National Employment Savings Trust (NEST) has come into force.
- This is being phased in from 2012 to 2018 with the effect on larger employers first
- A key feature is auto-enrolment although employees are able to opt-out
- Employers can use NEST as the main scheme or a supplementary scheme or set up a new scheme
- A workplace pension is a way of saving for your retirement that’s arranged by your employer.
- Some workplace pensions are called ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions.
- A percentage of your pay is put into the pension scheme automatically every payday.
- In most cases, your employer also adds money into the pension scheme for you. You may also get tax relief from the government.